• Economists have warned growth in one of Australia’s strongest property markets is unsustainable as they begin to call the top of the market.
• Two out of three told a recent survey that New South Wales prices will peak in the next six months, after rising more than 15% in 12 months.
• Few are particularly hopeful about the prospect of increased affordability though, as values and lending sit at record highs.
• Visit Business Insider Australia’s homepage for more stories.

Australian real estate’s latest tear might be one for the record books, but pundits warn that property prices can’t keep rising for much longer.

The majority of economists believe New South Wales, among the strongest performing markets, is losing steam and will begin falling in the coming months.

Surveying 28 of them in a recent survey, Finder found that two-thirds expect prices to peak this year. More than half of those say the top will be recorded in the last three months of this year, while the remainder expect it to come in this quarter.

If the forecast holds up, it would mark an end to one of the most spectacular property booms the state has seen. Sydney prices began to rebound in the second half of last year to finish the financial year 15%, or around $130,000, higher than they began it. Other towns in the state meanwhile have risen even more quickly, with places like Byron Bay recording over 40% growth.

Other states have boomed over a similar time frame, albeit at different paces. Darwin has been the hottest capital city market, while regional markets have jumped by an average of 17.7%. Conversely, Melbourne has been among the stragglers, still posting 7.7% annual growth.

At any rate, the heat in the property market has had a perverse effect on housing affordability. Despite a majority believing prices will soon plateau or fall, three-quarters of economists are pessimistic about affordability. It suggests few are expecting prices to actually fall by much.

Perhaps it is no wonder, given the poor reception the Morrison government’s housing policies have received, as it pumps more demand into a hot market, exacerbating a long-standing trend.

“For the average Australian first home buyer, housing affordability has been deteriorating since the mid 1990s,” AMP Capital chief economist Shane Oliver said.

In that vein, a majority of economists warned New South Wales’ first-home buyer grants of $25,000 shouldn’t be adopted by other states, warning it would only add yet more fuel to the market.

Almost half of the economists were concerned with the sky-high household debt racked up by Australians in the pursuit of homeownership, with figures showing Australians are currently taking out $1 billion in home loans every single day.

At the same time, four in ten economists believe the rising cost of living will squeeze households further.

Unsurprisingly, none expect the RBA to raise the cash rate when it meets on Tuesday, although the group remains split on whether or not the central bank can wait until 2024 to begin hiking.

As the Council of Financial Regulators (CFR) reveals it is considering intervention options in the market, the RBA is aware that it doesn’t need to further incentivise borrowing.

Separate research from Canstar suggests that the record low interest rates that have helped inflate Australia’s property market may not have actually helped the finances of Australians all that much.

Its own survey found that neatly six in ten Australians say interest rate cuts have been of no assistance to them.

“We fixate on what the Reserve Bank cash rate means to home loan interest rates, but the majority of Australians say that low interest rates are not helping them,” group executive Steve Mickenbecker said.

“Low rates directly benefit borrowers and approximately only one in every three Australians is repaying a home loan. Meanwhile first home savers are receiving no interest rate help towards meeting their savings goal and retirees are living off reduced income.”

Of course there are indirect benefits of interest rate cuts that aren’t captured by the survey, like helping stimulate other parts of the economy and tightening Australia’s labour market.

But the central bank would also be aware of the price of maintaining interest rates at effectively zero, the artificial inflation of property prices being just one major risk.

As it meets again on Tuesday, it will continue to be looking at what its exit strategy is, even if such a plan is years in the making.

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