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Housing market enters stagnation phase

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NAB has released its Residential Property Index for December, showing a fall of 17 points from the previous quarter. Median price expectations for housing point to a relatively flat market, with falls of 0.5% expected over the next 12 months. NAB chief economist Alan Oster said the bank believes stagnant prices will be the trend for 2011.

“We think markets will remain broadly flat. The weakest market is Brisbane. It was before the floods, and is now presumably weaker,” Oster said.

In spite of stalled prices and even modest falls in the market, Oster said the bank does not believe Australia is on the verge of a housing bust.

“Given the supply imbalance across Australia, we think it’s unlikely we will see much more than sideways [movement]. No crash,” he commented.

NAB’s index echoes the findings of ANZ’s housing predictions, which point to median prices stalling and beginning to decline in some areas. ANZ senior economist for property and financial system research Ange Montalti indicated the bank believes rising interest rates will lead to caution among builders, but that housing prices will begin to see growth again in 2011. ANZ has also predicted the rents will begin to creep up due to supply shortages.

Oster said the survey suggests lower priced properties closer to the city will do best.

And while a stalled housing market could lead the RBA to hold off on interest rate rises in the immediate future, Oster stated that the cash rate is still expected to head upward throughout 2011.

“[The results will] mitigate, but not completely dismiss [a rise]. We still see two 25 point rises in mid-year or late 2011 as the likely outcome. If the floods have a bigger impact than many expect, then it might delay tightening, as could lower CPI numbers,” he commented.

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