A leading economist expects the Illawarra's housing market to start rebounding within the next several months.
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However, before this occurs, house prices in the region appear set to fall further.
In analysing new CoreLogic data, Alex Frino, Professor of Economics at the University of Wollongong said the real estate price increase "drought" is well and truly broken for Sydney.
"Sydney house prices increased for the first time in 24 months in July, and unit prices increased for the second time in 16 months, providing strong evidence that the fall in house prices for Sydney is over," he said.
However, Prof Frino said there was no such luck for the Illawarra just yet.
"House prices in the Illawarra fell yet again in July - by almost one per cent," he said.
"However, the market for units showed an encouraging sign increasing by just less than a quarter of one per cent for July, after six consecutive months of price falls."
According to Prof Frino, the total fall in house prices for Sydney was about 18 per cent and unit price decreases about 13 per cent, since they started falling almost 24 months ago.
Meanwhile, house prices fell 14 per cent and unit prices nine per cent since they started falling in the Illawarra about two years ago.
"In my opinion, house prices in the Illawarra will fall about another three to four per cent over the next three months or so before they stabilize - as Illawarra house prices usually follow what happens in Sydney with a lag," Prof Frino said.
"Sydney is starting to recover, and we will follow suit in the Illawarra within about three to four months."
Prof Frino said there were three main reasons for the impending market recovery.
This included recent relaxation of Australian Prudential Regulation Authority (APRA) regulations, which had previously placed significant restrictions on banks' lending to investors.
"The timing of the introduction of those restrictions coincided perfectly with the commencement of the decline in house prices," he said.
"Those restrictions were relaxed two or three months ago, and that's one of the reasons why we've seen a moderation in the fall in house prices."
Prof Frino said the cash rate being at a historic low was another key factor, as was Labor's federal election pledge to abolish negative gearing and make changes to capital gains tax, which he said had accelerated the "downward spiral".
"It provided a disincentive, or uncertainty in relation to the real estate market for investment purposes," he said.
"With the election outcome being known, that uncertainty cleared up, which was a positive for the market."