One of the key factors powering Australia's stellar home price boom is set to slow dramatically, economists warn—a change that could finally see the country's seemingly endless run of property price appreciation take a well-needed pause.
Speculative investors are a major force in Australia's red-hot property market, helping push the value of residential property half a trillion dollars higher in the past year. In fact, more than half of new home loan approvals are for investment purposes, according to Reuters.
But that could soon change.
"While momentum in the housing market continues to take effect, we expect that going forward, record low rental yields accompanied by [new] macro prudential policies targeted at investor lending are likely to provide a test for housing demand, particularly from investors," Goldman Sachs said in a Monday report. That could see home prices increase at a more moderate pace, the bank added.
The Reserve Bank of Australia (RBA) has repeatedly voiced its concern over speculation in property markets in recent months, fearing that a sudden withdrawal by speculators could trigger a sharp housing correction, which in turn could hurt the broader economy, particularly given that 60 percent of household wealth is tied up in property assets. But despite rising home prices, the central bank isn't expected to take any action at Tuesday's policy review.
Like Goldman, Shane Oliver, head of investment strategy and chief economist at AMP Capital, believes lower investor demand could dampen home price growth going forward. He added, however, that an unlikely scenario in which the RBA rapidly increased interest rates well above the current 2 percent level would be the only event to trigger home price declines.