The grim predictions for Australia\u2019s property market began in May, when Morgan Stanley tipped a national house price correction of up to 10 per cent.<\/p>\n
Since then, pundits have become increasingly pessimistic as the Reserve Bank of Australia (RBA) has continued hiking interest rates and the Iran war has raged on.<\/p>\n
On Thursday, two experts \u2014 Cotality Research Director Tim Lawless and AMP Chief Economist Shane Oliver \u2014 both said they expected a national peak-to-trough correction of up to 15 per cent, exceeding HSBC\u2019s forecast of a 13 per cent decline. <\/p>\n
If realised, a 15 per cent drop would be the worst fall in nominal house prices that Australia has seen in the post-war period. <\/p>\n
\u201cIf you just take the current quarterly growth trends and annualise it, we\u2019re sitting on a trend rate of decline that\u2019s at 15 per cent nationally and at 17.1 per cent across the capital cities,\u201d Mr Lawless told news.com.au.<\/p>\n
\u201cWe\u2019re already seeing values falling at that pace. The question obviously is whether or not that will be sustained.<\/p>\n
\u201cI think there\u2019s a pretty good argument that we could see this housing downturn re-accelerate, given higher interest rates alongside inflationary pressures, and what looks to be no real resolution in the Middle East.\u201d<\/p>\n
His comments came as national home values had fallen 5.2 per cent from their March peak, according to the latest Cotality data. <\/p>\n
The decline for the combined capitals was 6.4 per cent, while Sydney was the city leading the fall (8.6 per cent) followed by Melbourne (7.5 per cent). <\/p>\n
The biggest fall the combined capitals have seen over the past 40 years was 8.2 per cent during the 19 months between 2017 and 2019.<\/p>\n
\u201cWe\u2019re already three quarters of the way there in six months, so we\u2019re already beating that trajectory of decline in a fairly short space of time,\u201d Mr Lawless said.<\/p>\n
\u201cA 10 to 15 per cent decline sounds reasonable to me. We don\u2019t have an economic forecasting model here at Cotality, so it\u2019s more of a view than a forecast.\u201d<\/p>\n
Mr Lawless ranked higher interest rates as the main driver of the decline, followed by tax reforms in the May budget, poor affordability and low confidence. <\/p>\n
\u201cWhen you look at the market peak, it was in March, so one month after the first rate hike. But even before rates started to rise, the market was clearly slowing down,\u201d he said.<\/p>\n
\u201cI think that\u2019s a clear reflection of things like affordability already becoming a barrier to participation and a headwind for demand. <\/p>\n
\u201cThe peak level of activity in terms of the volume of sales was in October. <\/p>\n
\u201cLate last year, inflation was starting to pick up, the RBA was becoming hawkish, confidence was starting to sink. And then you saw rates going up, the war in Iran and the federal budget handed down.\u201d<\/p>\n
Mr Oliver also revised his outlook for the property market on Thursday, calling for a 10-15 per cent top-to-bottom fall in prices, up from his earlier forecast of 10 per cent. <\/p>\n
\u201cIf you go back over the last 80 years, the worst decline has been about 8 per cent. We saw that in 2022 with rate hikes at the time, and we saw that in 2017-19,\u201d Mr Oliver told news.com.au.<\/p>\n
\u201cThere was a very sharp fall in house prices during the 1930s depression going into World War Two, so I suspect to get something comparable you\u2019d have to go back to that \u2014 and of course that was a lot worse. But we haven\u2019t experienced that sort of fall in the post-war period.\u201d<\/p>\n
Mr Oliver said he had changed his forecast because the present decline has \u201cremained stronger than I expected\u201d.<\/p>\n
\u201cWe are seeing quite hefty declines (in national prices) month-on-month and they keep getting revised lower, so that\u2019s one factor.<\/p>\n
\u201dSecondly, there is no sign of any let-up to the negative factors weighing on demand.<\/p>\n
\u201cYou\u2019ve got this combination of negatives: high rates, poor confidence levels and the tax hike on investors, along with poor affordability; all of these things are going to continue to weigh on the property market.\u201d<\/p>\n
Mr Oliver said house prices were likely to bottom by the June quarter next year as the market started to anticipate interest rate cuts. <\/p>\n
\u201cWe expect the RBA to start cutting through the second half of next year, but a sharp fall in home prices could bring this forward to the first half as falling prices depress wealth, which weighs on consumer spending, which in turn would bring inflation back to target faster than the RBA is currently assuming,\u201d he said. <\/p>\n
Recent homebuyers more likely to be in negative equity – RBA<\/p>\n