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Interest rates predicted to hold but will property prices peak this year?

The non-stop rise in house prices may hit an apex this year, according to the latest expert housing predictions from Finder.

In this month’s Finder RBA Cash Rate Survey, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy, with all panelists expecting a rate hold on July 6.

While all experts and economists surveyed expect the cash rate to hold at 0.1 per cent (40/40), the majority of those who weighed in on NSW property prices, (68 per cent) expect property prices to peak in 2021.

Nearly two in five (39 per cent) expect NSW property prices will peak in the final quarter of the year, while nearly a third (29 per cent) believe prices will peak within the next three months. The remaining one in three (32 per cent) think we won’t see prices peak until 2022 or beyond.

According to ABS data, after borrowing a record $48 billion for housing in the first four months of 2020, Aussies borrowed $75 billion in the first four months of 2021.

Graham Cooke, head of consumer research at Finder, said the rising property prices have led to unprecedented borrowing.

“Aussies borrowed $27 billion more for housing from January to April this year compared to last – and last year was a record,” he noted.

“Many feel that these increases can’t keep going indefinitely and our panel tends to agree. Expect the current rise in prices and activity to peter out by 2022.

“For first time buyers, this means that the bottom rung of the housing ladder should stop becoming steeper within the next six month,” Mr Cooke said.

Most say housing unaffordable for the average Australian

A vast majority of the economists surveyed (78 per cent) agree that housing is becoming unaffordable for the average Australian, with some experts blaming wage growth and extremely low home loan rates.

Tony Makin of Griffith University warned that a real estate bubble is emerging due to extremely low interest rates.

Shane Oliver from AMP Capital said this problem has been an issue for 25 years.

“For the average Australian first home buyer, housing affordability has been deteriorating since the mid 1990s,” Mr Oliver said.

Noel Whittaker from QUT said you need only look at the average wage numbers against the average house price to understand why housing is getting more and more unaffordable.

Finder’s Economic Sentiment Tracker gauges experts’ confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next six months.

Despite predictions that the housing market may peak before 2022, experts are still not optimistic about the affordability of housing.

Just 3 per cent are positive about the metric with 76 per cent saying they have a negative sentiment about it in the next six months.

Mr Cooke said next year is shaping up to be better for affordable housing than 2021.

“Positivity around housing affordability is still low, but if expert predictions of prices peaking later this year are true, 2022 could prove a much better year for housing affordability.

“Anyone saving for a deposit now could start to target a purchase next year,” Mr Cooke said.

First home buyers would get a $25,000 grant to help them enter the market in NSW in a government move to overhaul property tax.

More than half (55 per cent) of experts believe that the new $25,000 NSW first home buyers grant should not be implemented in other states, due to fears that it could increase property prices even further.

Dale Gillham, founder of Wealth Within, said this grant is not helping fix the problem.

“We constantly hear that property is overpriced and that first home buyers struggle to enter into it. Encouraging more demand from first home buyers only perpetuates this snowball,” Mr Gillham said.

Peter J Tulip, Chief Economist at Centre for Independent Studies, agreed, saying that without measures to boost supply this just reshuffles a fixed quantity of housing.

Most experts (68 per cent) believe that first home buyers are being forced to compromise on their home due to fear-of-missing-out in the property market. Positive Sentiment about housing affordability has been on a sharp decline since September of 2020.

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