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She said Melbourne house prices were bucking the trend, falling for the fourth consecutive month, with sellers outnumbering buyers.
“Despite the soft market, people are still trying to sell, which may indicate there is a degree of mortgage stress in Melbourne,” she said.
She said Melbourne residents had been leaving the city since the pandemic began, and despite an influx of international migrants, they tended to rent rather than buy properties.
“Investor activity has been fairly subdued, but that may be related to weak capital growth. The additional levies may also have spooked investors.”
The Victorian government has increased land taxes payable by investors, prompting some to reconsider the costs and benefits of holding onto property.
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In Sydney, by contrast, housing values were still rising but the rate of increase had “slowed significantly” and was more pronounced for houses than for units, she said.
“This is perhaps not surprising given the gap in value between houses and units has widened to $620,000, or about 73 per cent, as of July,” she said.
She said the fastest growing areas were those with the lowest costs of living, such as Canterbury, Mount Druitt and Fairfield.
“The high end of the market is definitely a little bit weaker.”
Mr Owen said high interest rates, high land prices and high construction costs also made it challenging to build more new homes.
She said the potential lack of housing supply would keep house prices at a certain level, but the large number of unfinished homes could curb continued price increases to some extent.
Inflation data released on Wednesday showed an annual rate of 3.8%, which some economists believe means The Reserve Bank does not need to raise interest rates further Mr Owen said many buyers were likely to factor possible future rate cuts into their purchasing decisions, suggesting that house prices would continue to rise, but not as quickly as before.
Westpac senior economist Matthew Hassan said housing affordability was becoming tight in both Sydney and Melbourne, limiting the pace of price growth.
He believes faster-growing markets such as Brisbane, Adelaide and Perth will eventually run into the same problem.
He said Melbourne’s market wasn’t too soft, but there were some investment properties for sale that weren’t being snapped up.
“In Melbourne’s case, there are several factors that have complicated the market. Firstly, the state government’s tax changes last year triggered a sell-off by investors, which has resulted in a build-up of stock,” he said.
“The economy is softer … wage growth is a little bit weak.”
He believes that overall house prices will continue to rise, but the rate of increase will gradually slow as buyers who can no longer afford to buy a house no longer consider buying a house. Interest rates may gradually fall over the next 12 months, but this is unlikely to lead to major changes, resulting in tight market affordability and insufficient housing supply.
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