SYDNEY (Reuters) - Australia’s ailing housing market is expected to turn around next year, but the recovery will be modest and a far cry from the boom times of double-digit price gains, a Reuters poll shows.

FILE PHOTO: An aerial view of houses located in Sydney's eastern suburbs, Australia, June 5, 2014. REUTERS/David Gray/File Photo

Australian home prices will likely end this year about 2% lower, according to a median of 12 analysts.

But they are forecast to rise 2.75% next year and by 3.50% in 2021.

In 2018, prices skidded nearly 5% to mark their worst year since 2008 largely due to tighter credit conditions and waning investor appetite.

The Reserve Bank of Australia (RBA) has cut interest rates twice since then to a record low of 1% and has pledged to keep policy stimulatory for a long time to come.

“We expect that lower interest rates will have a more powerful effect on housing prices than commonly expected,” Macquarie economist Justin Fabo told Reuters.

He expects prices in Sydney and Melbourne to surge 9% next year, the most bullish of the 9 forecasts for capital cities.

An end to the long downturn could be a boon for Australia’s struggling economy, given the erosion of housing wealth has undermined consumer confidence and spending power.

It will also prove a blessing for the construction sector, which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

Property prices are already showing some signs of revival. Data from property consultant CoreLogic this week showed home values had their biggest monthly gain since 2017 in August.

The Sydney market saw a jump of 1.6% and Melbourne added 1.4%, gains more reminiscent of the bubble days of 2016.

The improvement reflected a revival in clearance rates at property auctions, a popular method of sale in Australia’s major cities, with capital cities just shy of 80% last weekend.

However, most economists expect this upturn to be modest despite the recent surge in activity.

“Housing is now less affordable, and future increases in house prices are likely to be slower, due to limitations in the forward outlook for household income growth and more restrictive credit availability,” ANZ economist David Plank said.

Plank expects Australian home prices to ease 3.25% this year and then completely reverse those losses in 2020.

“While the outlook definitely looks more positive, we do not expect a V-shaped recovery for prices.”