The recent Quarterly Australian Residential Property Survey Q2 2016 released by the National Australia Bank expects apartment prices to drop across most capital cities in Australia in 2017 due to a supply surge. House prices are anticipated to grow 0.5 per cent next year, while unit prices are expected to drop 1.5 per cent.

Perth will be the most affected city, with a five per cent drop in apartment prices. It will be followed by Melbourne with a 3.5 per cent decline. Brisbane and Sydney are also set to drop by 1.8 and 1.5 per cent, respectively.

Perth is likely tot experience declines due to economic conditions, while Melbourne and Brisbane face increased supply and weaker investor demand. The same factors account for Sydney’s decline, but pent-up demand would stop prices from falling too far.

However, the report also stated that the 2016 national house price growth is set to grow from 1.5 per cent to 5.1 per cent. Apartments are likewise expected to grow 3.6 per cent by the end of the year.

“While there is a significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the long term,” said Alan Oster, NAB chief economist.

NAB is not the only one to predict price declines in the near term. BIS Shrapnel’s Residential Property Prospects report also forecast that house prices would decline across most capital cities over the next three years. 

However, Oster said that a sharp correction is not in the cards unless there is a significant economic catalyst, like a higher unemployment rate or interest rate.