Property prices to tumble $60,000 by 2020
Ahead of today’s interest rates decisions, all sides are tipping house prices in Sydney are heading for another $60,000 slide by 2020, with Melbourne hot on its heels with a $50,000 fall of its own.
Those figures are the expected outcome of a further 8 per cent fall in prices, according to Finder’s RBA Cash Rate Survey.
While the median for Sydney house prices currently sits at $930,000, a forecasted 6.21 per cent decline would take the new median to $872,242 — a drop of almost $60,000.
Melbourne’s property downturn is now officially the worst on record
CoreLogic figures, released today, show houses prices in Sydney have already experienced an annual 10.6 per cent decline, followed by Melbourne at 9.8 per cent.
Prices in Sydney are now back to where they were in 2016. Melbourne is back to August 2017.
Only Hobart, Canberra, and Adelaide have escaped the gravitational pull of tighter lending standards, and a general sense that the music has stopped, but even these cities have seen prices flat or even begin to fall in the last quarter.
As house prices rise, so does consumer spending in what’s known as the wealth effect. But a similar thing is true on the downward slope, with the latest ABS consumer spending figures weak.
This is leading Market Economics economist Stephen Koukoulas to suggest the Reserve Bank will drop the official cash rate on Tuesday.
We do know the economy is weakening, we just saw the CoreLogic numbers,” Mr Koukoulas said.
“Another price fall, we do know that that has an impact on consumer spending.”
He said even if the RBA didn’t cut rates tomorrow, the question was more when rather than if.
“How weak will the economy have to be before they go?” he said.
“If we look at the GDP numbers, the last two quarters were very weak last year.”
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LOWER RATES WON’T RESTART THE BOOM
Mr Koukoulas told News.com.au he thought that even if the RBA was to cut rates, it wouldn’t bring back the boom that saw house prices see price changes of 10-20 per cent a year.
“A rate cut will do more to help cash flows, there’s a more entrenched softening in housing,” he said.
“If we did see that housing was all of a sudden was increasing then the RBA should hike rates.”
But REA chief economist Nerida Conisbee said past experience showed any rate cut was associated with a spike in people looking to buy.
“We won’t see the housing bubble rekindled, but we will see activity increase,” Ms Conisbee said.
“The correlation between rates and clicks (by buyers on REA’s website) is very high and we know that people looking for housing respond very positively for a rate cut.”
AMP Capital chief economist and head of investment strategy Shane Oliver told News.com.au a rate cut was unlikely to push up prices.
“I would suspect that it wouldn’t inflate a property boom anything like it did back in 2011,” Mr Oliver said.
“Household debt is much higher so you may not see the same boost the last two times rates were cut.”
Mr Oliver recently revised his earlier prediction of a 20 per cent fall to a 25 per cent fall.
REA uses different measures of house prices than CoreLogic. They show price declines, but not as marked as CoreLogic.
Ms Conisbee said it was clear prices had a way to go, but that things were “looking more positive now than they were six months ago”. She said the direction of the market depended on the outcome of the election.
CoreLogic’s head of research Tim Lawless said any rate cut was unlikely to flow on into increased borrowing, given the higher rates many borrowers were assessed on.
“Even though you can get a mortgage at around 4 per cent or even lower, lenders will still assess affordability at 7 per cent or higher,” Mr Lawless said.
“It’s a major obstacle for many borrowers, as well as raising a deposit.”
Mr Lawless said the fall in Sydney and Melbourne had been steeper than had been expected and areas once considered safe were starting to feel the pinch.
“Adelaide has turned a corner, showing negative movements over the last three months Hobart and Canberra have slowed down, that’s the effect of tighter credit,” he said.
“The higher end of the marketplace is showing a higher fall in values rather than the affordable end.”
NEW PRICE BOOM GOOD FOR NO ONE
Many experts are in agreement that returning to a period of extreme price jumps would be bad for Australia, but that price falls had their cost too.
“It’s the change that matters, that rise in prices helped support the economy, people felt wealthier rather than the change,” Mr Koukoulas said.
“It’s more significant than that, people who did borrow at the top or who adjusted their spending patterns because their house was $1 million but now worth $875,000 it does impact sentiment.”
Ms Conisbee said stability in the market is what we need.
The message that gets reported is that strong growth is good and declines are bad and there’s always winners and losers in both situations,” she said.
“It’s in no one’s interest when it surges ahead 10 per cent per annum.”