FILE PHOTO: Cars travel along a road between homes in the Sydney suburb of Coogee in Australia, July 26, 2016. REUTERS/David Gray/File Photo

By Devayani Sathyan

BENGALURU (Reuters) - Australia's home prices will rise around 5-6% over the next two years as lower borrowing costs provide a fillip to home sales, although affordability pressures may cap gains, according to a Reuters poll of property analysts.

While a 5% rise pales in comparison with past booms, any sustained growth in house prices will make it harder for first-time buyers to get a foothold in Australia's already expensive housing market - the median home price is nearly eight times the average annual income.

The Reserve Bank of Australia's 75-basis point cuts since February have trimmed mortgage repayments and supported modest buyer activity. But, with rates expected to bottom out at 3.1% early next year, from 3.6% now, and supply constraints persisting amid already stretched affordability, analysts in the poll said another housing boom was unlikely.

Still, lower borrowing costs have pushed analysts to revise 2025 home price forecasts upwards. The August 18–September 8 Reuters poll of 15 property analysts forecast home prices to rise 5% this year, up from 4% predicted in Q2 and 3.7% in Q1.

"We're expecting the lift in house prices to continue, which has really been picking up since the RBA delivered its second rate cut earlier this year. As you get a few more rate cuts, household buying capacity will continue to rise and that will put upward pressure on the housing market," said Johnathan McMenamin, head of economic forecasts at Barrenjoey.

"Because house prices didn't fall as much as we anticipated them to during the hiking cycle, they're unlikely to increase as much as you might expect from 100 basis points or so of rate cuts on the other side as well. And that's really just because the affordability aspect is already fairly stretched."

Home prices in major capital cities – Sydney, Melbourne, Adelaide, Brisbane and Perth – were forecast to rise between 4% and 7% this year and next.

This is likely to further dent affordability in a market already struggling to crank up the supply of new homes. The national median home value rose around 4%, from A$814,293 in January to A$848,858 in August, high by historical standards, property consultancy Coality said.

Analysts who responded to an extra question on purchasing affordability over the next 12 months were nearly evenly split, with five expecting it to improve - though some described the improvement as modest - and four predicting it would worsen.

"The recent interest rate cut is welcome news for homeowners and investors, but it does raise concerns for those still trying to get a foot on the ladder. Lower rates are intended to improve affordability, but when they fuel demand in markets with chronic undersupply, the effect can actually push prices further out of reach," said Michael Yardney, founder of Metropole, a real estate advisory firm.

"Unless supply improves meaningfully, these dynamics could exacerbate the affordability crisis. In the short-term, however, investors with well-located assets are likely to benefit from both capital growth and strong rental demand."

(Other stories from the Q3 global Reuters housing poll)

(Reporting by Devayani Sathyan; Polling by Rahul Trivedi and Pranoy Krishna; Editing by Jonathan Cable and Hari Kishan)