While home prices in Sydney and Melbourne are overvalued by 14 percent and eight percent, respectively, advisory group KPMG Economics believes the bubble will deflate and not burst, reported The Australian.
“Whether or not the current Sydney and Melbourne housing prices constitute a bubble is a matter for debate, but we estimate that short-term factors have pushed median dwelling prices above their long-term equilibrium prices by about 14 percent and eight percent respectively,” said Brendan Rynne, chief economist at KPMG.
He noted that prices surged in previous price cycles before tapering back without the sort of collapse witnessed in some countries following the global financial crisis.
“We expect the same again to happen here now — we anticipate a cooling in price growth, and from next year prices will start to gradually come down,” he said, adding that prices in Sydney are expected to fall faster than Melbourne’s over the next few years.
According to KPMG’s Housing Affordability report, median prices in Sydney are expected to increase from A$880,000 in June 2016 to about A$980,000 in 2019. By mid-2021, prices are expected to gradually moderate to between A$930,000 and A$950,000.
Meanwhile, Melbourne’s median prices are expected to increase from around A$650,000 in 2016 to between A$720,000 and A$740,000 in 2019.
“After plateauing, they will then regain momentum to be between A$775,000 and A$825,000 by the end of the 2021 financial year,” said the advisory group.
This article was edited by Denise Djong.