Australian house prices are expected to increase by 10% this year, driven by the improving market sentiment and the low-rate environment, according to a report from Goldman Sachs.
The positive outlook for house prices came also came with a strengthened expectation for residential construction.
"This outlook assumes that immigration normalises to pre-COVID-19 levels in 2022 and the RBA does not hike the cash rate until the second half of 2024," said Andrew Boak, chief economist for Australia at Goldman Sachs.
Boak expects prices to increase further by 5% in 2022 and 3% in 2023.
"More prolonged border restrictions or an earlier-than-expected tightening in monetary policy pose downside risks," he said.
Boak said concerns around housing debt levels could potentially compel the RBA to change its stance on interest rates.
"For now, however, we expect the RBA to remain dovish and focus on achieving its targets for inflation and unemployment, and to de-emphasise risks around rising house prices," he said.
Tim Lawless, head of research at CoreLogic, also believes that macroprudential mechanisms would be enacted should financial stability risks arise due to the surge in prices.
"Macroprudential levers proved to be effective previously when concerns about investor activity and interest-only lending became over-represented in the market. A new round of credit tightening would probably have the same effect in reducing credit availability in specific areas of risk," he said.
Lawless said the low interest-rate environment continues to be a major factor influencing the rebound in sales activity and house values.
"With mortgage rates likely to remain at their record-low setting, at least through this year and probably next year, we are expecting to see further upwards pressure on housing prices," he said.
However, Lawless said despite recording rapid gains since October last year, house prices house prices are only 2.8% higher than their previous peak in 2017.
"Although housing demand is expected to remain strong, it is likely the current rapid rate of appreciation will taper as housing affordability constraints become more challenging, fiscal support is removed and first-home buyer incentives phase out," he said.
