The Australian falling house price is well-known. National house prices have fallen by 2% over the past year and Sydney house prices have dropped 5.6% in the same time period.
Permanent house price bears have been predicting the decline of property for years. The debt bubble kept on growing, but they were wrong by some years.
However, even the Positive Pollys are now saying that house prices are going to fall in the short-term and keep falling for a couple of years. You could say it’s actually in the interests of banks to predict good house price movements, so it’s telling they are predicting falls.
Yet today, Australia and New Zealand Banking Group (ASX: ANZ) economists said they now believe that price falls could continue until 2020 according to the AFR.
House prices are predicted to fall by 4% this year and 2% in 2019. The economists characterised 2018 as the year of contracting credit availability whilst 2019 will be the year of increasing credit costs – meaning rising interest rates. Indeed, the RBA is predicted to increase rates next year. Rising interest costs will not be good for property prices or affordability of the debt.
It doesn’t help that banks are implementing out-of-cycle interest hikes on households and investors. This may continue to be exacerbated with the US Federal Reserve continuing to increase its interest rate.
However, ANZ is still predicting peak to bottom price declines in Sydney and Melbourne of 10%. In my opinion, this prediction may turn out to be optimistic considering house prices are falling at roughly 0.5% per month in the two main housing markets.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.