With interest rates remaining high, the Australian property market boom of recent years would seem to be drawing to a close. However, solid economic performance and a dramatic tightening of housing demand/supply fundamentals will continue to lend support to the residential housing market over the next 12-18 months.

Despite this, the performance of both the economy and housing market in the year ahead will continue to be disparate across the country, with softness being squarely focussed in the non-mining eastern seaboard states. Furthermore, deteriorating housing affordability and rising fuel prices will accentuate the divergence in price performance between inner and outer suburbs.

However, with new housing supply falling well below underlying housing demand, by 2010 we project a record housing shortage of nearly 200,000 homes. No where is this more pertinent that in the Sydney market.  When conditions for the build sector improve and interest rates are inevitable cut we anticipate an unprecedented residential construction boom, that may only be limited by the capacity of the sector bring on supply.