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House prices to fall ‘next year’

Getty

Getty

A spike in interest rates next year will unsettle Australia’s booming property market, an economic forecaster has predicted.

The report by BIS Shrapnel warned that house prices in Sydney and Melbourne would weaken by the end of 2016, although probably by no more than 10 per cent.

The Reserve Bank of Australia (RBA) cut the official interest rate to a historic low of 2 per cent in May and it held steady at the same rate in June.

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The most concerning part of the market was the explosion in apartment construction, the report said.

“The boom in apartment construction over the past couple of years is creating a disconnect in the supply balance between detached houses and units, with a resulting difference in their price outlook,” BIS Shrapnel senior manager Angie Zigomanis wrote in the report.

“Most capital cities are building apartments at record rates, driven by investor demand.”

In June 2018, unit prices are expected to be below that of June 2015 – by 1 per cent, the report revealed.

Mr Zigomanis said strong tenant demand would be needed to support rentals and the value of apartments.

Net overseas migration has fallen from a recent peak of 235,700 people in 2012/13 to about 184,000 during the 2014 calendar year.

The slowdown in migrants was most evident in the mining boom states of Western Australia, Queensland and the Northern Territory, the report showed.

with AAP

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