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MELBOURNE’s median house price will only be higher in 2020 than it is now because of inflation, according to a leading industry research provider.

BIS Oxford Economics forecasts the city’s median house price to rise just five per cent over the next three years — a three per cent drop with the effect of inflation removed.

The company’s “Residential Property Prospects 2017 to 2020” report tips Melbourne’s median unit price to fall by a total of four per cent in that time, or 11 per cent in “real terms.”

This is the figure reached when the impact of inflation is excluded.

Comparatively, Melbourne’s median house price rose 23.1 per cent to $640,000 in the three years to February 2017, according to CoreLogic.

The city’s median unit price rose 5.6 per cent to $491,000 in that time.

Median house price growth in Melbourne is about to slow, according to BIS Oxford Economics.

Median house price growth in Melbourne is about to slow, according to BIS Oxford Economics.Source:istock

BIS Oxford Economics senior manager and study author Angie Zigomanis cited slowing rates of international and internal migration and cuts to investor lending for the changing outlook.

“The dual effect of the emergence of an oversupply and further APRA (Australian Prudential Regulation Authority) directives that will reduce bank lending to investors will increasingly dampen the price outlook in Melbourne,” he said.

“Pressure on prices is expected to be most concentrated in the apartment sector, although there is nevertheless likely to be an impact on house prices as well.”

The report forecasts Melbourne’s median house price to slow to growth of three per cent in 2017/18 and remain flat in 2018/19.

A downturn in new dwelling construction will then result in excess stock being snapped up again and house price growth potentially picking up by the end of the decade, it continues.

Most of Melbourne’s excess supply will be in the apartment market, though, where investor demand is more concentrated, the report concludes.

It comes as KPMG Economics states Melbourne house prices are overvalued by 8 per cent.

The group forecasts dwelling prices will decline gradually, rather than sharply, peaking next year and pausing for a year or two before starting to grow again.

KPMG chief economist Brendan Rynne said Sydney would experience a greater adjustment than Melbourne over the coming years.

“Domestic investors will be affected by the APRA move to curb interest-only mortgages and we believe that monetary policy will start to tighten sooner rather than later,” he said.

“Investors both here and overseas have been the key driver behind the housing price boom and policymakers are now addressing this.”