In its latest quarterly national outlook, HIA says a stable interest rate environment this year will pave the way to a gradual improvement in housing conditions. However, it warns that the crisis in housing affordability would mean a lower housing activity as many homebuyers opt to stay out of the market. "New building activity will be softer in this year but a recovery should slowly emerge over 2007/08," said Harley Dale, HIA chief economist. HIA said the three interest rate increases last year will cause housing starts to fall by a forecast 1% in 2006/07 after falling 13% over the past two years. That would see housing starts bottom at a level of 149,000. "The risk is for sharper decline as New South Wales is yet to show a sustained recovery in building as high land prices hurt Sydney and as the drought weighs down on regional building activity," said Dale. "Housing starts are forecast to grow by 3% in 2007/08 and a further 6% in 2008/09, within which the stark differences evident across states in recent years will remain. Over 2007/08, housing starts are forecast to rise by 6% in NSW, from an extremely low base, but fall by 13% in WA," he added.

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