Finance Finance News House prices ‘to rise 10%’ in 2014

House prices ‘to rise 10%’ in 2014

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House prices are expected to soar 10 per cent this year, but the Reserve Bank may need to start hiking rates in 2015 to prevent a dangerous bubble emerging.

HSBC Australia chief economist Paul Bloxham says that while the property market is not currently in bubble territory, it could be headed that way if rates remain at record lows.

Mr Bloxham expects house prices to rise about 10 per cent in 2014, after gaining around 16 per cent in the past two years as buyers take advantage of low mortgage rates.

The latest figures suggest his prediction may be on track, with capital city prices up around 1.6 per cent in July, according to RP Data.

But he says the RBA will need to start lifting interest rates soon in order to prevent a bubble emerging, especially in Sydney.

“We remain of the view that Australia does not currently have a housing bubble,” he said.

“(But) the longer mortgage rates remain at low levels, the more this risk grows.”

He expects the RBA to lift the cash rate from its current low of 2.5 per cent in the first half of 2015.

Mr Bloxham said the Sydney property market, where prices have risen at roughly twice the rate of other capitals in the past year, was particularly worrying.

“The current pace of housing price growth in Sydney seems likely to be unsustainable,” he said.

“(It) is starting to show signs that the mere expectation of rising housing prices may be starting to drive housing price gains, which is worrisome.”

But Mr Bloxham said the rise in house prices across the country up to this point was simply a case of the market playing catch up after several years of weakness.

And he said while Australians were taking on new loans, they were also paying down their debt faster than in the past, with the average mortgage holder ahead on their repayments by about two years.

“Existing mortgage holders are becoming even lower risk, as they pay down ahead of schedule,” he said.

Meanwhile, the low interest rate environment had provided a much needed boost to the residential construction sector, which was helping meet the demand for new housing.

Mr Bloxham expects investment in new houses and units to rise at its fastest pace in a decade in 2014 and 2015, providing a boost to the economy and helping offset the impact of the mining investment slowdown.