Westpac bank says the housing market is likely to remain weak for several years, as the changes to tax subsidies on investment properties in the budget take effect.
A report from the property valuer Quotable Value shows prices fell 5.6% in June, while sales remained 20% below average, partly because people could not keep up mortgage payments.
Westpac's senior economist predicts house prices will fall by about 2% a year for the next two years.
Dominick Stephens says the market will remain sluggish thereafter, as interest rates continue to rise, population growth slows and investment properties become more expensive.
"Our calculations suggest it took about five years for the tax hike
from 33% to 39% that occurred in early 2000 to really work its way through the housing market and boost house prices.
"So it could take years for the market to really get its head around what lower tax subsidies for landlords really means for the underlying value of houses."
Mr Stephens expects rents to rise about 7% as landlords seek to compensate for the loss of their subsidies.
