Mortgage rates will shoot up to 9 per cent within three years after the RBA is forced to make some near-term cuts to help the ailing economy, according to BIS Shrapnel, the property analysts.
It says that while homeowners and businesses will be given some short-term relief with 0.25-0.50 per cent of cuts over the next year, a recovering economy and rising inflation would force rates back up again during 2013.
In the QBI LMI Housing Outlook 2011-2014, prepared by BIS Shrapnel, managing director Robert Mellor agrees with many market forecasts that the RBA could cut the cash rate in November to 4.5 per cent. But said that the tight labour market and rising inflation would force the cash rate back up to 6.5 per cent by 2014. That would translate to mortgage rates averaging about 9 per cent. (More From Kochie's Business Builders: Follow Kochie's Business Builders On Twitter)
Until then, Mellor remains bullish about property prices, forecasting that Sydney prices will rise by 19 per cent over the next three years, 16 per cent in Brisbane, 8 per cent in Canberra.
"Most markets remain undersupplied or at best balanced," BIS Shrapnel managing director Robert Mellor said.
Another property analyst, Residex, says that the forecasts are "about right" although Sydney was likely to slow in the next few months, and Melbourne could "fall off a cliff."
"A year ago Sydney had a property shortage of around 20,000 dwellings, and now that is down to just 9,000, so we could see price growth stall for a few months" said John Edwards, CEO of Residex. "After that, house prices will most likely see moderate growth in most capital cities except Melbourne." (More From Kochie's Business Builders: Businesses And Investors Urged To Prepare For Crash)
Edwards said a massive oversupply issue in Victoria, especially Melbourne, is likely to see property prices fall dramatically.
"There is already an oversupply of properties and they are still building more which is adding to the problem" he said.
"I wouldn't be surprised to see prices there fall by 10 per cent or more over the next year."
Notiwithstanding the poor outlook for Melbourne, the generally bullish forecasts for the next three years fly in the face of much more bearish predictions by economists such as Professor Steve Keen of the Univerity of NSW and Harry Dent, the prominent US economist currently on a talking tour in Australia. (More From Kochie's Business Builders: Sign Up To Kochie's Newsletter)
Dent thinks that an imminent bursting of a credit bubble in China could rock Australia's economy and see prices fall by up to 50 per cent. Steve Keen has forecast similar declines but over a 10-year time period.
Dent will be joined in Sydney today by Mark Bouris, executive chairman of Yellow Brick Road Financial Servicves, who is also cautious about the outlook for property prices.
Bouris recently told a Property Council of Australia lunch that at least 70 per cent of an investors portfolio should be in cash – fixed interest securities and term deposits. The rest should be split between shares and property. (More From Kochie's Business Builders: Most Australian Workers "In Recession")
