Moody’s Analytics has released its latest Australian house price forecasts, predicting that Sydney house values will fall 4.2 per cent this year, before starting a recovery in 2019.

It says Sydney apartments values will increase by 0.3 per cent this year.

According to the report, by 2019 the correction is likely to have passed, with house values increasing by 0.9 per cent and apartment values increasing by 1.6 per cent.

“Supply constraints factor heavily in Sydney’s housing market and contributed to the strong run-up in prior years,” the report says.

“A high level of supply has come on line for apartments in the inner city and surrounding areas, as well as dwellings in suburban areas via land releases and the removal of some development restrictions. This will contribute to the forecast price slowdown in 2018.

“Given our expectation of robust income growth and low unemployment, house values are likely to recover as incomes catch up.”

Other predictions in the latest CoreLogic-Moody’s Analytics Australia Home Value Index Forecast are that Melbourne house values will rise 3 per cent this year and its apartment market will gain 5.2 per cent.

House values in Brisbane are forecast to rise 1.8 per cent this year, with strength in West Brisbane and Inner Brisbane offsetting declines in South Brisbane and Logan-Beaudesert. Brisbane apartment values are also expected to rise.

Perth prices are expected to fall, while Adelaide and Canberra will both rise, but at a slower pace.

“Australia’s residential property market garners much attention locally and abroad, as it is one of the few in the developed world not to have experienced a sizeable correction,” Moody’s Analytics says.

Our baseline estimate is that this will persist in coming years. However, housing momentum is fading and growth in values will decelerate across the country this year.