Property Price Falls Set to Double Previous Estimates

Property price falls could as much as double previous estimates as weakening environment, tighter credit and an oversupply continue to strike residential markets.

According to Morgan Stanley, declines are stretching to their largest since the early 1980s.

Peak-to-trough property prices are anticipating declines near 15–20%, which is double the previous best-to-worst-case scenario of 10–15% declines, as the investment bank’s analysis shows.

It seems that housing declines are sharper, and it’s here that we see key indicators such as rental condition to credit supply really weaken.

Evidence backs property price falls worsening

Data shows worsening conditions are likely to place added pressure on the Reserve Bank of Australia to lessen its outlook for the meeting 5 February. With many economic experts seeing the balance of risks leaning towards a cut this year, as stated in Morgan Stanley’s analysis.

Morgan Stanley’s team of equity strategists, spoke about the broadening economic impact of the property slowdown:

We are now watching second-round impacts closely

There is evidence of a consumer pullback over Christmas but jobs impact will be key for any negative feedback loop to push Australia into a balance sheet recession’.

A balance sheet recession outlines how high levels of debt and mounting concerns over economic outlook can push consumers and companies to concentrate on saving and paying off debt, as opposed to spending or investing, as reported by The Australian Financial Review.

Which more often than not triggers a slowdown in economic growth.

For instance, there’s anticipated declines in construction (specificity apartments), where further credit tightening is causing projects to be postponed.

While research shows that credit growth is continuing to slow with interest-only and investor lending low, even after the Australian Prudential Regulation Authority removed restriction.

The big four banks are still clearly shaken, as lending is kept to a minimum while they await outcomes from the banking royal commission at the start of February.

According to Morgan Stanley’s analysis, the supply of new buildings is outweighing demand in the coming months, which is putting pressure on property prices.

Why property price falls increased in the fourth quarter 2018

Property price falls have fast tracked in the last quarter of 2018, we saw national prices decline as much as 7% from their peak, according to The Australian Financial Review. It seems, economic indicators point to little relieve from this pressure in 2019.

Sydney vacancy rates are still rising, rental inflation stagnant at 1% and rental revenues are increasing despite the house price falling.

To put this in prospective, a 15–20% decline in real terms (allowing for inflation) would be the biggest decease since Malcom Fraser was prime minister, between 1981 and 1983 Sydney’s medium house price was $79,000.

Figures like that can be scary if you don’t know how to work with a declining housing market.


Ryan Clarkson-Ledward,
For Markets & Money

Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and where the big risks are that you might not be aware of. In Markets & Money you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course a whole lot more.

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