The housing market is expected to recover next year.

Australia's housing market is expected to witness a recovery next year, with prices likely to jump by as much as 10%, economists at UBS said.

UBS revised its earlier 3% to 5% price-growth projections after the strong lending growth in July. Recent figures from the Australian Bureau of Statistics show that loans to owner-occupiers rose by 5.3% to $13.25bn. Loans issued to first-home buyers also grew, up by 1.3% to $9.26bn. The surprise, however, came from the 4.7% improvement in investor lending.

"We expect home loans to lift to 15% to 20% year-on-year over the next year, underpinning stronger house price growth of 5% to 10%," UBS economist George Tharenou said.

Also read: Is recovery just around the corner for the housing market?

It appears, however, that green shoots are already emerging, with prices recording their biggest monthly gain since 2017 in August, according to CoreLogic.

Home prices across capital cities rose by 1% over the past month, the most substantial increase since April 2017. The national market also witnessed a monthly price gain of 0.8%, the fastest pace since October 2017.

The two biggest housing markets, Sydney and Melbourne, witnessed respective price gains of 1.6% and 1.4%.

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CoreLogic research director Tim Lawless said the significant lift in values over the past month is in line with the consistent performance of the auction market.

"It's likely that buyer demand and confidence are responding to the positive effect of a stable federal government, as well lower interest rates, tax cuts and a subtle easing in credit policy," he said.

The possibility of further rate cuts over the following months to early next year could serve as a springboard for home prices, Lawless said.

"If the strong rises in values continue over coming months, we would not be surprised to see a new round of macroprudential policies introduced in order to keep debt levels in check and encourage spending in other areas of the economy," he said.

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