It seems property prices could decline as much as 20% from peak-to-trough across housing in Sydney and Melbourne, as ANZ revises it forecast and abandons its call for the Reserve Bank of Australia (RBA) to lift official interest rates, in order to support property prices.
ANZ is just the latest of economists to lower its predictions amid deteriorating housing markets, which were combined with an alarming effect from credit tightening.
Nevertheless, the decline in property prices looks lengthier, and larger than previously thought. This led many economists to revise their forecasts…
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What revised forecasts mean for property prices
As recently as September, ANZ tipped a 10% fall in peak-to-trough housing prices in Sydney and Melbourne, with current downward trends extending to 2020.
But new research published on Thursday, saw bank economics Daniel Gradwell and Jo Masters review their forecasts for both Sydney and Melbourne, to lower a peak-to-trough decline between 15–20%.
‘Until recently, housing prices have been performing broadly as we expected…
‘And in fact, most capital cities are still tracking in line with our forecasts.
‘Sydney and Melbourne, however, are not.’
‘We had expected by this stage to see some evidence that price declines in these cities were moderating, as the impact of credit tightening started to wind down. But price falls are continuing at a material pace and are broadening through most segments of these markets.’
Major economists were inclined to agree, as housing outlooks appeared ever more bearish.
This week, HSBC predicted property prices in Sydney and Melbourne from peak-to-trough to decrease between 12–16%, following accelerated downturns in housing values which prompted reanalysis of previous forecasts, as reported in the Australian Financial Review.
Forecasts were in line with last week’s consultancy SQM research’s predictions of 12–17% declines, but when compared to forecasts made last month by AMP capital chief economist Shane Oliver, current revised forecasts — while still bearish — seemed less so comparably.
In Morgan Stanley’s revised outlook made last month, it saw initial house prices fall as much as 10–15% from peak-to-trough, nationally.
Price declines are no longer only occurring in the top quartile of property’s in Sydney and Melbourne, as mid-to low housing markets are also experiencing price drops, as confirmed by ANZ economists.
Even after the support from stamp duty and discounts for first home buyers, we are still seeing falling prices at the lower end of the market.
With detached houses preforming the worst, apartments were not much better, Australia’s housing market weakness is spreading outside its capital cities, according to ANZ’s economic team.
‘Rather than seeing some tentative improvement at this stage, almost every housing market indicator is at the weakest level in a number of years,’ the ANZ economists wrote.
Housing finance approvals have dropped almost 15% since last year, with owner-occupier financing now beginning to reflect investors, as reported by ANZ. Meanwhile, auction clearance rates are at decade lows in both Sydney and Melbourne.
The number of days that a house will stay on the market has been steadily increasing in both cities too, with the average property now takes near 40% longer for it to sell, when compared to last year.
If you’re feeling overwhelmed by the sheer quantity of data being thrown at you, all you should take away is that, Australia’s property prices are likely to continue their downturn.
Are you prepared for an Aussie housing collapse? Find out here before it’s too late.
Property forecasts points to credit tightening
Economists have already warned that property declines could continue into 2020, but what do they say is causing this?
A key cause in the downturn comes from tightening in credit availability, rather than interest rates, says ANZ economists.
I’ll leave you with ANZ’s prediction as to what direction Australia’s housing market could go:
‘We think there is further to go. We now expect housing prices in Sydney and Melbourne to fall around 15–20 per cent from peak to trough.
‘This outlook is based primarily on ongoing credit tightening, while additional downside risks are possible changes to negative gearing and the eventual arrival of higher interest rates, whether from higher funding costs or RBA rate hikes.
‘Keep in mind that even a price fall of this magnitude takes values in those two cities back to 2015 levels, which we see as an orderly correction. Having said this, there will be some purchasers who will lose money or may have negative equity.’
For Markets & Money
PS: Want to know how you could weather the Downturn in Australia’s property market? Economist Harry Dent reveals in his free report: ‘Two Rules for Surviving a Potential Property Collapse’.