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Growth in home building and house prices in Australia is going to shrink further, according to the latest business outlook report from Deloitte Access Economics.

The economists say the big home building boom of recent years has started to peter out, which could mean storm clouds for New South Wales and Victoria, the states with the biggest property price rises.

Even Sydney house prices, which have seen a huge surge since interest rates were first cut, are showing signs of losing momentum.

“The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in housing markets,” the economists say.

And the Chinese credit surge is easing back, suggesting the global economy won’t be doing Australia quite as many favours from 2018 onward.

“Yet those are merely caveats on an otherwise solid outlook,” Deloitte says.

“Relative to the rest of the rich world, Australia’s economic outlook may not be quite as impressive as it once was, but we are still kicking goals.”

The economists say the jump from a China boom to a housing price boom sent the nation’s money and momentum from its north and west to its south and east.

“Yet although the resource rich sunbelt — Western Australia, Queensland and the Northern Territory — is feeling pain, much of the drama for those regions already lies in the rear view vision mirror.

“Their next phase will be one of recovery, albeit not quite yet.”

In NSW housing construction is still growing solidly, although it has slowed from double digit growth rates of much of the past three years.

“Even so, Sydney house prices are silly-yet-still-rising, which helps to keep the ‘build versus buy’ equation in the favour of new building,” says the business monitor report.

However, the economists say today’s hero states of NSW and Victoria have clay feet.

“A house price boom borrows growth from the future, and both NSW and Victoria will have to pay back some of their current prosperity in the years ahead as housing prices gradually reconnect with reality,” the business monitor report says.

“Luck’s a fortune, and NSW has it in spades amid the shift to lower interest and exchange rates since 2012.

“But storm clouds are building, as the housing price boom has artificially supported retail and home building. There’ll be an eventual butchers bill to pay as those supports reverse.”

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