House prices still on track for 2% growth

Jack Chambers & Jo Masters

Economist & Senior Economist, ANZ

Australian house prices remain on track to rise two per cent year-on-year in 2018 and four per cent in 2019, according to a model from ANZ Research, despite changing expectations around interest rates.

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ANZ Research now expects the Reserve Bank of Australia to make no change to the official cash rate in 2018 and two hikes in 2019. This development is positive for the house-price forecast in 2018 but weighs on house price growth the following year.

"The good news is offset to an extent by the slightly lower-than-forecasted price growth in the first quarter.”

That said, the modelled house price expectations are largely unchanged from the model’s January outlook.

The shift in interest rate views for this year is offset to an extent by the slightly lower-than-forecasted price growth in the first quarter, which means that momentum will be less of a positive for the forecast than previously thought.

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As planned

Other inputs to the model are broadly unchanged.

Ongoing residential construction activity is expected to remain elevated in 2018. This is a negative for the model due to the additional housing supply. If building activity and completions slow in 2019 – as expected - then this element will turn positive for the forecast.

Gross total income growth improved to 3.4 per cent year-on-year in the fourth quarter – its best annual growth rate since 2015.

ANZ Research expects this will slowly become more positive for the model’s forecast throughout 2018 and 2019 given the expectation of a gradual improvement in wages growth.

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