The property price boom is well and truly over, with analysts now forecasting peak-to-trough home value falls of up to 20 per cent in Australia’s two major housing markets.
AMP economist Shane Oliver is the latest property commentator to dramatically revise his predictions for the ongoing downturns in Sydney and Melbourne.
Property prices in the two capitals are likely to see “top to bottom falls of around 20 per cent as credit conditions tighten, supply rises and a negative feedback loop from falling prices risks developing”, Dr Oliver said this week.
“Starting about a year ago it seems the tide has turned against property prices,” he said, pointing to a number of factors including poor affordability “which has reduced the pool of buyers”.
The news comes a week after investment firm Morgan Stanley revised its forecasts downwards, estimating that prices will fall by up to 15 per cent from their September 2017 peak.
“We now see a 10-15 per cent peak to trough decline in real house prices, from 5-10 per cent previously, which would mark the largest decline since the early 1980s,” Morgan Stanley said.
According to Dr Oliver, however, a nationwide “crash” in home values remains “unlikely”.
Over the past year home values have fallen by 2.7 per cent nationally, according to the latest figures from property data firm CoreLogic.
Sydney and Melbourne have led the price falls, with annual declines of 6.1 per cent and 3.4 per cent respectively.
However, the current downturn remains mild considering national dwelling values skyrocketed by 43.9 per cent over the decade to June 2018, according to CoreLogic data.
During that time the combined capital cities experienced price increases of 52.6 per cent, with the combined regional markets growing in value by 16.6 per cent.
The two major eastern capitals were responsible for much of the growth.
Home values in Sydney soared by 64.4 per cent over the five years to January 2018, while Melbourne prices shot up by 56.4 per cent.
Home price booms “hand in hand” with rising household debt
The price booms in Sydney and Melbourne have gone “hand in hand with a surge in household debt,” Dr Oliver said.
“This has taken the household debt to income ratio from the low end of OECD countries to the top end.”
Australian households are the most over-leveraged in the Asia-Pacific region, with household debt at 122 per cent of GDP in 2017, according to data from Moody’s Analytics.
Property investors “should remain wary” of the declining Sydney and Melbourne markets, and instead turn their attention to “higher yielding” areas, Dr Oliver said.
“Other cities will perform better having not seen the boom of the last few years.”