Housing market is expected to stabilise as supply and demand even out.

The housing market is poised to witness supply and demand come into balance, allowing for stabilisation in house prices, according to a new forecast by the Housing Industry Association (HIA).

HIA's projections show that the supply of new work into the pipeline could soon reach its low point, allowing for the current number of homes to remain at a level enough to meet the demand.

"All indications are that this stabilisation will occur and prevent a more significant downturn. This will set a new market equilibrium where the supply of new homes meets, rather than exceeds, demographic growth requirements," HIA chief economist Tim Reardon said.

This market equilibrium is expected to result in the number of new homes remaining around 180,000 per year, not in excess of the 200,000 that have been built annually for the past five years.

However, Reardon clarified the apparent resilience of the detached home segment. He said that while the demand for new detached homes seemed to have held up well, the segment actually recorded a 9% decline over the year. 

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"This apparent resilience is due to the lag between the sale and commencement of construction of the houses and gives the impression that contemporary market conditions are stronger than is the case," he said.

However, this decline would be crucial to achieve the demand-supply equilibrium the market needs to dispel any chances of a further downturn.

"Detached house starts are forecast to decline by 7.6% in 2019-20, primarily in the first half of the financial year and stabilise at around these levels for the following two years," Reardon said.

The unit market, on the other hand, is expected to undergo worse conditions. In fact, apartment market starts are now 41.8% lower than a year ago. This trend could continue as more projects reach completion and few developments commence.

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Reardon said the positive thing about the decline in unit starts is the convergence of conditions in the building industry.

"We no longer have a boom in east-coast capital cities and stagnating markets elsewhere," he said.

However, this decline is expected to persist, with a further fall of 12% in 2019-20 before starting to recover in 2021-22.

Reardon believes that market developments will be able to help the market recover over the next years.

"If economic activity improves, the credit squeeze dissipates, home prices stabilise, and the recent stimulus measures take hold, the supply of new work into the pipeline will soon reach its low point," he said.

The development around interest rates, income taxes, and lending restrictions could also help support activity and drive economic growth.

"State and Australian governments’ investment in infrastructure is also important to support labour market growth," Reardon said.