Some market commentators are now saying that house prices could fall by 20% or more from its peak to the bottom in Sydney and Melbourne.
Are Australia’s house prices crashing?
House prices in Sydney have been falling for more than a year. According to Corelogic research the Sydney housing market is down 9.5% since its peak in July 2017.
But, it was the latest figures from November 2018 showing that Sydney prices fell 1.4% in one month that has caused dismay. Melbourne house prices also dropped by 1%.
Earlier today, the AFR ran a story showing that property flippers are now finding it difficult to make a profit, even after spending on renovation costs. CoreLogic said that over the 12 months to September 2018, 5.8% of re-sales transacted at a gross-loss.
Since the Royal Commission began looking at the big banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), investors and owner occupiers have found it harder to get a loan for their desired amount.
There are various reasons that market commentators are concerned about which way prices are headed: foreign investors aren’t buying, borrower expenses are being scrutinised closer and rising interest rates.
How far will Sydney and Melbourne prices drop?
Chief economist of AMP Limited (ASX: AMP), Shane Oliver, now thinks 20% falls in Australia’s two biggest cities are possible.
Australia and New Zealand Banking Group (ASX: ANZ) economists have done their numbers and think it will be a 15% to 20% fall for Melbourne and Sydney.
In a worst-case scenario, UBS analyst Jonathan Mott has predicted that house prices could fall by 30% in a deep recession scenario.
However, it may not all be doom and gloom. Analysts are expecting the Australian Bureau of Statistics (ABS) to report GDP growth of 3.3% on Wednesday.
Another reason to be cheerful is that property prices are holding up in most other cities. Over the past three months Brisbane, Adelaide, Hobart, Darwin and Canberra property prices are all up according to Corelogic. A property price crash may be limited to Melbourne and Sydney, if it ‘crashes’ at all.
Either way, no-one is saying property prices are heading up anytime soon, so the share market may create better returns.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).