House price growth ‘no longer sustainable’

Sydney harbour sunset

Sydney and Melbourne house prices are unlikely to see the same growth they enjoyed in recent years due to one underlying factor, according to an Australian economist.

ING head of treasury Michael Witts says house price growth in Australia’s two largest property markets cannot continue at current levels.

“I don’t believe that price increases are sustainable longer term in the absence of wages growth because we’ve had a period where wages have been subdued over several years now,” Mr Witts told nestegg.com.au.

“So although housing prices have moved up, wages haven’t kept up, meaning we have an increased level of household debt that needs to be serviced. As long as we have a stable labour market, that’s fine but I think we may need to see some wage increases for there to be sustained price increases.”

While growth rates may be unsustainable, Mr Witts is sceptical that house values in Australia’s two largest cities will take a hit.

“I think there have been a number of people, particularly first home buyers, who have been shut out of the market so any decrease in the market will probably be fairly well supported by that sector,” he said.

“I don’t think we’ll see significant decreases in prices. I think any dips would be largely at the margin.”

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