Macquarie Group Ltd reports Sydney and Melbourne house prices could fall up to 20%

Economists and house price data academics around Australia have been busily revising their predictions for Australian house price falls lower over the past month after a series of weak auction clearance rates that tend to be a forward indicator of further price falls.

Sydney and Melbourne’s house prices have already fallen 4%-7.5% over the past year, although some weak data has led to Macquarie Group Ltd (ASX: MQG) economists issuing a harsh warning to homeowners and investors.

According to reports in The Australian Financial Review the Macquarie securities economists now believe Sydney and Melbourne house prices could crash 15%-20% from peak to trough, which would be a consequence of banks like National Australia Bank Ltd (ASX: NAB) or Commonwealth Bank of Australia (ASX: CBA) making it harder for owner occupier or investor borrowers to get as much credit.

Recently AMP Limited (ASX: AMP) economist, Shane Oliver, also claimed Sydney property prices could fall up to 20%.

This could leave some home owners in negative equity, where the value of their property is less than their loan, although the vast majority of Melbourne or Sydney homeowners would still be sitting on healthy paper profits. This as Sydney for example saw prices increase around an average of 70% over the period 2012-2017.

The core issue bringing house prices down is that banks are willing to extend less credit to borrowers as the bankers have come under fierce criticism during the Royal Commission and as a result of other allegations that many borrowers were obtaining ‘liar loans’ in understating their monthly expenses or overstating income.

Now the banks have lifted their own margin of safety in calculating how much they will lend to borrowers and more strictly enforced due diligence checks on borrowers house prices are falling.

New South Wales also introduced an 8% stamp duty on overseas buyers from July 1 2017 and since then the property price slide has gathered pace as overseas buyers are also squeezed out the the Sydney market.

Fortunately the Macquarie economists stated prices should not fall any further than 20% “absent a major global economic downturn”….

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Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. 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.

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