Economists warned Australians to brace themselves for the downward spiral of residential property values as an after- effect of tighter credit and escalating mortgage rates. This is predicted to be the “longest and deepest” housing slump in the nation’s modern history.
Paul Dales, the chief economist for Capital Economics in Australia, stated that property values can fall by 12% over the next four years.
He added “But by prompting households to spend more cautiously, it will probably contribute to GDP growth being closer to 2.5% over the next few years rather than the rates of 3% or more the RBA is banking on.”
“With the full effects of tighter credit conditions and rising mortgage rates yet to be felt, the current housing downturn will probably end up being the longest and deepest in Australia’s modern history.”
Dr. Shane Oliver, Head of Investment and Chief Economist at AMP Capital shared with his clients that property prices in Sydney and Melbourne may drop 15% by 2020 indicating that the market trend will continue.
“Tighter bank lending standards, poor affordability, rising unit supply, falling price growth expectations and FOMO (fear of missing out) risking turning into FONGO (fear of not getting out) for investors, are pushing prices down in cities which have seen strong gains since 2012,” he said.
“A crash landing remains unlikely in the absence of much higher interest rates or unemployment, but it’s a risk given the difficulty in gauging how severe the tightening in bank lending standards in the face of the royal commission will get and how investors will respond as their capital growth expectations collapse at a time when net rental yields are around 1-2%.”
CoreLogic head of research, Tim Lawless said that the slump can be attributed to various factors. “Fewer active buyers has led to higher inventory levels and reduced competition in the market. Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply.”