A home-building surge in recent years is likely to stave off a major rebound in Australian property prices, an economic forecasting agency says.

BIS Oxford Economics said it expects median values in the country’s capital cites to increase during 2020 but the amount of new homes being added would cap the rise.

“Supply is running at record levels, with new dwelling completions having exceeded 200,000 in each of the past four years and expected to have peaked at a record of just under 227,000 dwellings in 2018/19,” BIS Oxford Economics associate director Angie Zigomanis said.

“This compares with underlying demand for new dwellings averaging around 195,000 per annum in the same period, which in itself is a record.”

The firm’s Residential Property Prospects 2019 to 2022, released on Monday, said a slowing economy would also weigh on demand.

“An acceleration in economic growth is not expected until 2020/21 after residential construction bottoms out, and both improving building activity and business investment begin to drive economic growth”.

BIS Oxford Economics forecast median house prices in Sydney and Melbourne to still be below their respective peaks of June 2017 and December 2017 by June 2022.

-AAP