The decline in home values across Sydney and Melbourne could be more severe than first anticipated, placing further pressure on the Reserve Bank to cut the official cash rate, AMP Capital’s chief economist has said.
According to AMP Capital chief economist Shane Oliver, property prices in Sydney and Melbourne risk falling further than initially expected, with economic indicators showing signs of an entrenched slowdown.
“For some time, we have been of the view that Sydney and Melbourne home prices will have a top to bottom fall of around 20 per cent out to 2020 translating into a fall in national average prices of around 10 per cent,” Mr Oliver said.
“The plunge in clearance rates and acceleration in the pace of house price falls late last year, along with the ongoing credit tightening, the record pipeline of units yet to be completed, reduced foreign demand, investor uncertainty over potential changes to negative gearing and capital gains tax along with price falls feeding on themselves, suggest that the risks to Sydney and Melbourne prices are on the downside of our 20 per cent forecast falls.”
Mr Oliver added that falling home values, coupled with mounting pressures absorbed by households as a result of out-of-cycle rate hikes could threaten consumer spending, prompting a sooner than expected change in the Reserve Bank of Australia’s (RBA) monetary policy outlook.
“The threat this poses to consumer spending, along with rising bank funding costs and out-of-cycle mortgage rate hikes, reinforces our view that the RBA will cut interest rates this year, but the cuts could come earlier than the second half that we have been allowing for,” he said.
Mr Oliver’s remarks follow the release of the Australian Bureau of Statistics’ (ABS) latest Housing Finance data, which reported a 2.5 per cent fall in the value of home loan approvals in November 2018, in seasonally adjusted terms, driven by a 4.5 per cent decline in investor lending, and a 1.4 per cent slump in owner-occupied lending.
The latest figures provided by property research firm CoreLogic have also revealed that national dwelling values have slumped by 4.8 per cent nationwide, driven by a 6.1 per cent drop across Australia’s capital cities, led by an 8.9 per cent fall in Sydney and a 7 per cent decline in Melbourne.
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