Buried in yesterday’s very upbeat business confidence and conditions survey from the National Australia Bank was a surprisingly negative forecast on house prices for 2010.

The NAB reckons there’s a chance they could fall, after the strong gains seen in the first nine months of this year.

That is not a line or forecast you’ve heard elsewhere.

The general line for most forecasters is for home prices to rise next year, even though the impetus from the first-home buyers scheme will ease.

Prices have risen strongly so far in 2009, especially in the first half.

According to the Australian Bureau of Statistics house price index, house prices are more than 6% in the year to September and 4.2% in the three months to September alone.

Now the NAB says there’s a chance that upward price pressure will ease next year. It all depends on the level of unemployment and the impact rising interest rates have.

The bank said that in an environment of under-building of new homes (which should boost the price of existing houses; the first-home buyers scheme and low interest rates, “house prices have recently jumped significantly — and are now up about 6.5% on this time last year.

“Interestingly, compared to our housing price model (key determinants being: population growth, real rates, unemployment, and the state of the building cycle), house prices slowed more than expected and have now essentially returned to the model-implied levels.

“In the near term, we expect to see continued strength but that fades in the face of higher unemployment and an implicit sharp rise in real rates (from negative to over 2% in our forecasts).”

That would imply a small fall in house prices during 2010 (around 5%).

“The combination of a continued undersupply in housing and relatively less strong housing price market is, however, expected to see moderate gains in new dwelling activity in 2010 — with investment in new dwellings increasing by about 12% over the year to December 2010.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey