Australian house prices have much further to fall, AMP Ltd (ASX: AMP) Chief Economist Shane Oliver argues, as a "perfect storm" of interest rate rises, tax hikes for investors, and poor confidence hit the market.
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House price falls just getting started
In a recently released report, Dr Oliver said that Cotality figures show national home prices fell 1.1% in September, bringing falls to date to slightly more than 5%.
But he warned much worse was to come.
Dr Oliver said:
Further falls are likely as home prices are being hit by a perfect storm of rate hikes, tax hikes on investors, poor confidence and poor affordability depressing demand with a high risk of distressed sales flowing from higher mortgage rates and unemployment. We now expect national average property prices to have a top to bottom fall in prices of 10-15%, of which they have done 5.2% so far. Sydney, Brisbane and Adelaide are likely to see the deepest falls, whereas Melbourne is likely to have a shallower decline.
Dr Oliver predicted the market would bottom out around the June quarter next year, before a modest recovery in 2027-28 as the Reserve Bank of Australia (RBA) moved to start cutting official interest rates.
He added that units and lower end property would likely not drop as steeply, given they didn't appreciate as much, and because they benefit from the expanded first home buyers 5% low deposit scheme.
Dr Oliver said the negative factors affecting the market were currently outweighing the upward pressure from a shortage of housing.
He added:
Were it not for three key supports the property market would be a lot weaker. These are: the accumulated housing shortfall of an estimated 200,000 to 300,000 dwellings; vendors not being in a rush to sell just yet aided by still low unemployment; and the expanded first home buyer 5% deposit scheme which is helping to support lower priced entry level houses and units. However, despite these supports, the Australian housing market is still likely to weaken significantly further as higher mortgage rates, the removal of most property tax concessions, record poor affordability and poor confidence continue to impact at a time of a rising risk of distressed selling.
Rate rises likely off the cards
Dr Oliver said he believed the RBA would not raise interest rates again, but "we don't see it cutting rates until the second half next year''.
He added that given there is still uncertainty about the full impact of the property tax changes on demand, "the risk remains on the downside".
