House prices are slated to strike solid gains this year despite recent signs of affordability constraints, with investors now taking the reins.

ANZ senior economist Felicity Emmett said the housing sector remains in a good shape, even with the recent lockdowns and restrictions as the Delta variant of COVID-19 threatens the nation.

According to ANZ's forecast, house prices are expected to rise just above 20% on average across capital cities this year.

"We still anticipate some slowdown in price growth over coming months, driven by slightly higher mortgage rates, decreasing affordability and the potential for macroprudential tightening," Ms Emmett said.

The latest growth in housing finance solidifies this outlook.

While owner-occupiers, who served as early drivers, started to retreat, investors began reclaiming their space in the market.

In fact, over the six months to June, investor lending rose 55% and has more than doubled since June last year.

The moderation in the owner-occupier segment was due to the pull-back by first-home buyers, whose segment reported a 3% decline in lending during the first six months of the year.

"Affordability constraints are now biting, and these are likely to see first-home buyer lending continue to drift lower," Ms Emmett said.

A recent report from CoreLogic has showed housing affordability has worsened as prices shoot up.

This has already started to cool off the red-hot markets, with price gains slightly slowing down in July.

Rental markets are strengthening

Perhaps one reason why investors are back is the robust recovery in rental markets.

The recovery of the rental markets was on the back of the increasing demand for dwelling as indicated by the near-decade-low vacancy rates.

Ms Emmett said the recovery is not confined within regional areas just like it was before.

"The market is now showing broad-based strength,” she said.

“The strong economic recovery and fast reduction in unemployment is likely to bolster the rental market.”

Even the unit segment, which was heavily impacted by the COVID-19 pandemic, has already caught up with the recent recovery from a significant downturn last year.

"Capital city rents have picked up strongly in recent months, helped by a robust recovery in Sydney and to a lesser extent Melbourne,” Ms Emmett said.

“This strength is largely being driven by the unit markets in each city."

Busy construction until next year

ANZ forecasts construction activity to remain elevated until the end of the year.

It will be supported by the remaining impact of government incentives.

"Very low interest rates and continued fiscal support for home buyers should underpin housing demand going forward, although slow population growth will be a headwind," Ms Emmett said.

While building approvals have already started to decline, a substantial amount of construction activity is already in the pipeline, keeping home builders busy for the rest of 2021 and into 2022.

"Once that pipeline dries up, construction activity looks set to decline, although ongoing low mortgage rates and a rise in apartment approvals should cushion the fall.”