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Expert claims Sydney and Melbourne house prices could fall 30%

The Australian Financial Review and News Corp (ASX: NWS) media are reporting that property research advisory group SQM research has published its latest 2019 Australian housing market report, which has taken a nasty turn in its expectations for Australia’s house prices in 2019 and beyond.

According to news.com.au the research by SQM suggests that the median home price in Sydney is set to fall 6%-9% in 2019, if Labor wins the upcoming federal election.

If the Liberal government wins, SQM research suggests Sydney’s median house price will only drop 3%-6%.

These research reports should be taken with a pinch of salt though, as nobody really knows what direction house prices will take in the years ahead. For example this time last year SQM was predicting pretty strong house growth of 4%-8% for Sydney in 2018, although in hindsight this forecast was way out.

However, it is true that the Labor party has plans to reform negative gearing rules that give property investors advantageous tax breaks, and the SQM researchers have a really big warning for any property investors thinking about voting Labor.

According to the AFR, SQM believes if Labor’s negative gearing plans were implemented then Sydney and Melbourne’s house prices could fall as much as 30% from their 2017 peaks.

This kind of drastic scenario is likely to have serious downstream consequences for the NSW economy, as households rein in spending across the board.

Another problem affecting the outlook for house prices are likely recommendations from the Hayne Royal Commission that major lenders such as Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) tighten their due diligence on the capacity of borrowers including owner occupiers and investors.

It’s also apparent that if Sydney’s house prices did fall 30% then bad debt charges would rise across the board for all the major banks in a result likely to send their share prices lower.

A home loan lending ‘credit crunch’ is reportedly already fuelling the house price falls across east coast cities, with the prospect of more to come adding to the negative outlook.

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Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia. 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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