According to one leading economist, the housing market is set to take over from mining as Australia’s primary economic driver.

In his latest release of the CommSec Economic Insights report, chief economist Craig James says real estate is poised to lead the fiscal way.

“The housing sector is the sector most likely to take the baton from mining and drive the economy forward over the coming year,” he says.

“Home prices are lifting at the fastest annual rate in more than two and a half years with prices at the top end of the market now rallying and Sydney home prices at record highs.”

The report goes on to say populations are rising in capital cities but new home construction isn’t keeping up, which is resulting in generally tighter vacancy rates.

“New construction will need to respond to the demands of owner-occupiers, while investors will be enticed to shift funds from cash into property ownership.”

The report sights RP Data-Rismark analysis which shows capital city home prices rose by 1.6 per cent in July with house prices up 1.7 per cent and apartment prices up 0.6 per cent.

Home prices are higher now than they were a year ago in seven of the eight capital cities with Perth, Sydney, Melbourne and Canberra all up by more than four per cent.

“Housing has more significant multiplier effects across the Australian economy than the mining sector, so stronger construction and purchase activity will be important in providing fresh momentum to economic growth.

“With the cash rate poised to fall to 2.5 per cent and with returns on investment properties currently running at a 9.4 per cent annual rate, more budding investors are likely to be enticed to shift funds from cash into residential property,” James says.

Source: Australian Property Investor August 2013