Sydney housing market will flatten, says economist

by Julia Corderoy21 Apr 2015
Sydney’s housing market is likely to plateau next year, according to a prominent economist. 

HSBC’s chief economist Paul Bloxham says the Reserve Bank is likely to start increasing interest rates in 2016, which will see the Sydney market lose its steam. 

“Sydney house prices are running at an unsustainable pace,” he told the AAP.

“The more Sydney house prices go up, the more likely it is that they will have to correct, and that's not necessarily a bubble.”

According to CoreLogic RP Data, home values across Sydney rose 3% over March, 5.8% over the March quarter and 13.9% over the year to March.

However, Bloxham says Sydney’s prices could surge further before levelling, with the Reserve Bank tipped to cut the cash rate to 2% this year due to the sluggish economy. 

However, one alternative to boosting growth without putting pressure on house prices, according to Bloxham, is for the federal government to postpone its attempt to balance the budget until 2016/17 when the economy will likely be stronger.

“The government tried to tighten up fiscal policy last year when the mining boom was over,” he told AAP. “When growth in the economy is sluggish, that is not the time to tighten fiscal policy.”

HSBC is forecasting economic growth to increase to 3% next year, from the 2.5% pace of 2014, and says commodity prices are not likely to fall much further in 2015.