• Following an explosion in property prices in 2021, economists and experts say meteoric price increases will not continue into the second half of the year.
• While prices will continue to rise until 2022, the pace will slow as a multitude of factors, including potential regulation impact the market.
• “Some of the heat has already come out of the market,” Cameron Kusher, director of economic research at realestate.com.au, said.
• Visit Business Insider Australia’s homepage for more stories.

Australia’s property boom will continue, but some experts say price growth may be reaching its limits as they look beyond the meteoric growth of the past few months.

While prices have surged this year, with further growth expected for the rest of the year and into 2022, both economists and real estate agents on the ground say that while it’s likely property values will continue to rise, the supercharged growth of the past few months is coming to an end.

House prices have jumped by more than 20% in Sydney since the beginning of the pandemic, a trend that has extended to a lesser degree across all of Australia’s capital cities, with prices rising 2.2% nationwide in May.

In early June, data from CoreLogic showed that Sydney median home values were rising at a rate of $1,000 a day, a factor that pushed the average New South Wales home above $1 million mark for the first time.

But Cameron Kusher, director of economic research at realestate.com.au said prices are unlikely to continue to climb at the same pace.

Kusher named several factors he said would culminate in a slowdown, including fixed mortgage rates, regulation in the form of tightening lending standards, the winding back of government stimulus and weakening demand; and the potential that closed borders into 2022 could lead to oversupply in the market.

He said that right now the housing market was continuing to record high demand and sales volumes, the property market was starting to slow.

“While the market is still booming, some of the heat has already come out of the market,” Kusher said.

“We expect that although prices will continue to rise, they will rise at a slower rate over the coming months,” he said.

While homes were selling at record speeds, as demand continues to outstrip the supply of properties for sale, Kusher said peak price growth conditions had passed.

Similarly, chief economist at AMP Capital Shane Oliver told realestate.com.au that the market had passed the peak period of strength in terms of clearance rates and price gains, which he said probably saw its peak around March.

“Clearance rates are still strong but they have slowed down and it looks as if we’ve lost a bit of momentum in price gains,” Oliver said.

“Price gains are still pretty high, but it’s off its peak.”

Kusher said he expected the market to slow over the second half of this year and into the middle of 2022, however he noted factors, like if and when international borders reopened this year, could impact these projections.

“Given the current setting, I would expect further increases and assuming international borders reopen mid-next year, that could add to housing demand,” he said.

And despite promises of slowing growth, Kusher said he still projected double-digit price increases of between 10% and 15% for 2021, followed by single-figure growth rates in 2022.

Falling prices expected, but not until 2023

Both Kusher and Oliver said they expected to see possible price falls by 2023, but that was far from certain.

Kusher said the introduction of regulation for the property market, which he said was more likely in 2022 than this year, could cause prices to fall.

“I believe the market will slow in 2022 whether we have macroprudential policies introduced or not – in fact I think the market will start to slow before they’re needed,” he said.

“If they were to be introduced they could lead to price falls in 2023. However, absent their introduction, I would expect prices will continue to rise in 2023, albeit at a fairly slow pace, but a fall is also a possibility especially if borrowing costs are increasing.”

Haynes Wileman, a real estate agent with Phillips Pantzer Donnelley in Sydney, told Business Insider Australia he’s seen a marked slowdown in sales over the month.

“The last four weeks it’s been 80% clearance rates all year and then the last four weeks have been 70% clearance rates,” Wileman said, noting this indicated the hot market was “starting to cool.”

He said this could translate to property prices as spring arrived, when a bulk of properties traditionally come onto the market.

“In spring we’re expecting it to be very strong in the number of listings, Wileman said.

“If that happens, just because prices have had such a good run, then clearance rates will continue to drop from the 70s we’re in at the moment, and it could go down to the 60s, which is a regular market.”

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