Australia's housing market is likely to peak next year, Goldman Sachs says

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Australia's housing market is likely to peak next year, Goldman Sachs says

- The housing market in Australia is likely to peak late next year and then enter a period of stagnation in response to improved supply and tighter lending curbs, according to Goldman Sachs Group Inc.

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Prices will dip 22% this year, then stabilize to a 5% gain in 2022, before turning flat in 2023 and then slipping 2% in the year after, Goldman economists said in a research note Tuesday.

Goldman expects Australia's banking regulator to implement a combination of lending restrictions based on loan-to-value ratios and debt-to-income over the next year. Earlier this month, the regulator raised the minimum interest rate buffer that lenders must account for when assessing loan applications.

The Reserve Bank of Australia is holding its key interest rate at a low 0.1% since November 2020 and has signaled it s unlikely to start lifting borrowing costs until at least 2024. Policy makers have made clear that monetary policy is focused on trying to boost employment and wages and will not be responding to soaring home prices.

From a policy perspective, we think the softening in price growth over the next few years supports our relative RBA rates view, given a near-term hiking cycle would weigh on prices and housing related GDP growth, Boak said.

In contrast to the central bank's outlook, traders pricing rate hikes as soon as early 2022 or early 2023.

Boak estimates that if the RBA followed market pricing, housing would fall about 13% between 2022 and 2024, subtracting around 1.5 percentage points from economic growth via a lower wealth effect and decreased housing activity.

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