Low interest rates, combined with investor appetite and lower volumes, will push house price growth higher than expected this coming year to 7.9 per cent, according to the National Australia Bank's new research released on Wednesday.
The national outlook for 2016 has been revised up from 5.1 per cent as a result of a sharp rise in the six-month annualised growth in house prices, according to NAB's third quarter Residential Property Survey.
But as the resurgence "runs out of steam", the market is expected to remain "soft for a little longer'" with "subdued" growth in 2017, according to NAB.
Melbourne prices will nudge up just 0.3 per cent next year after posting an 11.9 per cent increase this year, according to NAB Economics.
NAB Group Chief Economist Alan Oster said the price forecasts for Melbourne and Sydney had been "revised" with sales and auction volumes both decreased.
“We have revised our price forecasts upwards in response to a sharp rise in the six-month annualised growth in dwelling prices, particularly in Sydney and Melbourne,” Mr Oster said.
“The RBA’s recent interest rate cuts have been a major source of support, while investor credit has also picked up again. On the supply side, there also appears to be a number of factors at play with auction and sales volumes down compared to a year ago.
“As we have said for some time, there is considerable uncertainty over the outlook for dwelling prices. We are expecting a more subdued environment from late-2017 as supply conditions become less favourable.
“However, we continue to hold the view that residential property prices are unlikely to experience a severe price ‘correction’ without a trigger that leaves unemployment or interest rates sharply higher – which we are not anticipating,” Mr Oster said.
Foreign buyers were seen as having played a lesser role in local markets in Q3 - accounting for an estimated 10.2% of all new and 6.4% of all established property sales (the lowest reported levels since mid/late-2012).
NAB Economics expects a more subdued housing market from late-2017 as supply conditions become less favourable.