Rents will rise as house prices fall, says Westpac
3:00 PM Friday Jul 2, 2010

House prices will fall gently for the next two years before levelling out, but rents will rise because property investment is now returning less because of the October personal tax cuts, says Westpac in its latest housing market update.

And while residential property sales may pick up a little in coming months as some property investors reorganise or quit the market, Westpac expects several years of subdued sales volumes and prices.

"Based on today's fundamentals, we'd say houses are only slightly overvalued," said the bank's chief economist, Brendan O'Donovan, after a fall of 12 per cent in inflation-adjusted terms since 2007 when the housing market was "grossly overvalued."

"We are forecasting modest house price declines, in the order of 2 per cent per annum, for 2010 and 2011."

However, different parts of the market would react differently, especially to the October tax changes, with the likelihood that rented, typically lower value properties would fall in price while high income earners would have more disposable income after the tax cuts, underpinning high-end property.

More here.