House prices forecast to drop sharply, then recover in 2020

Emma Duffy By on April 10, 2019
 
lightning over city

Photo by Andre Furtado from Pexels

House prices in Sydney, Melbourne and Perth are set to continue falling steeply across 2019 before a possible recovery in 2020, according to Moody’s Analytics.

Melbourne is forecast to lead the price slide, with an 11.4% slump tipped for house prices, and a more modest but prolonged 5% dip in apartment values.

Sydney values are expected to bottom out at the end of this year before staging a modest rebound in 2020.

Analysts are tipping a 9.3% fall in house prices and a 5.9% dip in apartment values in 2019, before a predicted 3.6% and 4.2% rebound respectively in 2020.

The outlook is dismal for Perth too. Both house and apartment prices are expected to slide a further 8%, having been in decline for several years now.

Both house and apartment prices are expected to slide a further 8%, having been in decline for several years now.

The current downturn could be further exacerbated by Labor’s proposed changes to negative gearing and further tightening in lending restrictions.

“An important driver of the slowdown in Australia’s housing market has been tighter credit availability, partly as a consequence of the regulator – the Australian Prudential Regulation Authority – tightening lending conditions, which has made it relatively more difficult to purchase a property – particularly for investors,” the report said.

“The recently concluded Banking Royal Commission Into Misconduct in the Banking, Superannuation and Financial Services Industry could exacerbate already tightened lending conditions, which could result in a further slowdown in credit availability, particularly in the investor portion of the market.

“If this occurs, it could exacerbate the forecast correction in the property market and delay or weaken the forecast improvement in 2020.”

In his column for Switzer Daily, financial commentator Peter Switzer said it’s all just guesswork at this point.

“These (figures) are all guesses. They could be right or wrong to the high side or the low side, but I do like the fact that they are not calling for a 40% drop like some extremists expect,” he said.

“The prediction game can have consequences and that’s why I point to the long-term value of buying quality stocks and property. In an ideal world it’s good to buy those quality assets when the price is falling, so you are a contrarian buyer when everyone wants to sell.”

Falling house prices being driven by consumer spending – or lack thereof

Moody’s say house prices are being driven down partly because of softening household consumption which is being compounded by low wage growth.

“The underlying trend in consumption has been weak, as consumers have dipped into savings absent decent wage growth over the past few years.

“The downside risk is that the housing market declines sharply, more than expected, and the negative wealth effect becomes more concerning across households, causing consumption to drop and the overall unemployment rate to rise.”

NAB economist Kieran Davies echoed this yesterday when he said that with sliding house prices pushing wealth lower, consumer spending is likely to remain weak as a result of the ‘wealth effect’ – which is where consumers’ spending levels are influenced by the value of their homes.

“Wealth effects on spending are likely to be more important in current circumstances given the size of the decline in house prices and since there is no offset from household income, which continues to post only weak growth,” he said.

For feedback or queries, email emma.duffy@savings.com.au

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Emma Duffy
Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.

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