Investment bank UBS has called the top of the Australian housing market.
Property prices in Australia have been rising rapidly, with growth currently at a seven-year high of 13 per cent. However UBS is predicting growth to slow to seven per cent in 2017 and then drop as low as zero per cent next year.
“After housing activity rose consecutively for over four years, its longest ever boom, we are now calling the top and think that housing activity has already peaked,” commented UBS economists Scott Haslem, George Tharenou and Jim Xu in a note to their clients.
“We see a moderation ahead amid record supply and poor affordability, with the new buyer mortgage repayment share of income spiking to a decade high.”
They cited the higher interest rates and tighter mortgage lending rules as the reason for their prediction of weakening demand. However, they have suggested that prices would correct in a sharp downturn (as opposed to a full crash) because of population growth and the absence of any Reserve Bank rate hikes.
The forecast comes as Australian regulators are attempting to cool the local market by reducing the amount of risky lending, especially on interest-only and buy-to-let investment mortgages.
The Australian Commonwealth Bank raised fixed rates on Friday, specifically targeting investor loans. Just three days later Westpac increased its interest rates accordingly.
It is understood that buyers in Australia are now putting an average of 28 per cent of their incomes towards their mortgage repayments on a monthly basis. This is five per cent higher that the average, causing UBS to warn that a 100 basis point rise would make repayments unaffordable for many.