St George economist tips minimum 5% house price growth in capital cities in 2013 including Melbourne

St George Bank economist Janu Chan is confident that low interest settings will ensure house price growth of at least 5% and as much as 10% in Australia’s major capital cities over 2013, with growth at the lower end of this range for Melbourne.

Most forecasts for Melbourne house prices are on the flat or bearish side.

Australian Property Monitors (APM) is forecasting 0% to 3% price growth for Melbourne over the course of the year, BIS Shrapnels expects just 0.9% growth while hotspotting.com.au's Terry Ryder believes prices could fall 5% in 2013.

Chan accepts that her forecasts of 5% to 10% growth are higher than some other analysts are predicting, but says they are “still nowhere near the house price growth in that has been witnessed in the past in Australia”.

Principally, she believes a low interest rate environment will support the market.

“I would find it difficult to believe that house prices will see flat to backwards growth with interest rates as low as they are, likely to stay low into 2013, and there is already some evidence of house prices stabilising, including in Melbourne, “ she tells Property Observer.

“It also takes time for the impact of lower interest rates to feed through to various parts of the economy and to housing, and this is likely occurring still. Population growth has also picked up,” she says.

However, she tempers he remarks by saying that the performance of house prices in Melbourne will be on the lower end of the bank’s forecast range, “because it does not have the same supply constraints as in other states, and they have already had a good run up in house prices over 2009-10”.

“There are downside risks to our forecasts including if the unemployment rate rises sharply and/or the global economy takes a turn for the worst. However, we expect the unemployment rate to stay low even though we expect it to edge higher, and the global outlook is improving.

“There are still difficult conditions in the housing market, and suggests there is room for another rate cut.

“We expect the RBA to cut rates once more by 25 bps in the second quarter this year.

“Overall, we are optimistic on the housing market because I believe the RBA will step in and lower interest rates further if these downside risks materialise,” she says.