Media Release

RBA Survey: House values to plummet by up to $194,000 – December, 2018

    • Experts and economists predict 15-20% drops in property prices in Sydney and Melbourne
    • Positive sentiment for housing affordability hits year-long high
    • 67% of experts believe the property downfall will lead to less construction

3 December, 2018, Sydney, Australia – Current and prospective property owners in Sydney and Melbourne should prepare for a big drop in housing value, according to finder.com.au, the site that compares virtually everything.

In November, ANZ Bank forecasted a 15-20% fall from peak house prices in Sydney and Melbourne and in turn abandoned its call for the RBA to begin lifting interest rates next year.

Finder asked experts and economists to weigh in on the forecast in this month’s finder.com.au RBA cash rate survey.

The majority of experts (15/21, or 71%) said they agreed with ANZ’s assessment.

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital, is on the more dire end of ANZ’s forecast.

“I have not been expecting a rate hike next year and have been forecasting a 20 per cent decline in Sydney and Melbourne property prices top to bottom,” Oliver said.

Graham Cooke, Insights Manager at finder.com.au, said that economists’ predictions of drops in the property market have become more dramatic.

“ANZ’s suggested 15 per cent drop would see $145,500 and $118,500 wiped off the average house price in Sydney and Melbourne respectively.

“A 20 per cent drop would see nearly $200,000 disappear from the equity of Sydney homeowners,” Cooke said.

What 15-20% property value reductions look like

City Median sales price last 12 months Potential 15-20% reduction
Sydney (houses) $970,000 $145,500 - $194,000
Melbourne (houses) $790,000 $118,500 - $158,000
Sydney (units) $720,000 $108,000 - $144,000
Melbourne (units) $555,000 $83,250 - $111,000

source: finder.com.au RBA survey, CoreLogic sales price data .

Cooke cautions that young buyers who were able to pay a lower deposit by getting their parents to be their guarantor could be particularly at risk.

“If we do see these types of price drops in the market, recent home buyers who laid down a 20 per cent deposit could see themselves in negative equity by the end of the year.”

Interestingly, positive sentiment for housing affordability has hit a year-long high, up from 46% last month to 54%.

Renovate or build during a falling market?

Economists were evenly split as to whether the housing downturn would result in more or fewer renovation projects.

“There is however solid agreement that there’ll be fewer new homes built in 2019,” Cooke said.

Two-thirds of experts (14/21, or 66%) expect less construction, with 38% of experts predicting there’ll be at least a 10% drop in construction of new homes in 2019.

Will a property downturn affect construction?

Response %
Yes, 5-7.5% drop 29%
Yes, 10% drop 10%
Yes, 15% drop 14%
Yes, more than 15% drop 14%
TOTAL Yes 67%
No 33%

source: finder.com.au RBA survey.

Economist Geordan Murray of HIA said the fall in housing prices in the larger cities mean the cash rate will remain steady on Tuesday (04/12/2018), a view firmly by the entire panel of 32 experts and economists in the finder.com.au RBA Survey.

"There is still insufficient evidence of inflationary pressures to justify a rate hike. Declining home prices in Sydney and Melbourne, particularly given the magnitude of the falls, would ordinarily trigger calls to cut rates,” Murray said.

Seventy-eight percent of those surveyed expect the next rate change, whenever it does happen, to be an increase, consistent with last month.

Here’s what our experts had to say:

Alan Oster, NAB: "Wages still sluggish and consumer [is] nervous."

Alex Joiner, IFM Investors: "The RBA have become marginally more confident in its assessment of the economy recently however these expectations are still some way off in being observed in the economy - this again supports the assertion that interest rate hikes are some way off yet."

Alison Booth, ANU: "The fundamental still don’t want any change."

Clement Tisdell, UQ-School of Economics: "No good reason to alter. Any rise in interest rates is problematic given the high level of indebtedness of Australian households."

Dr Andrew Wilson, My Housing Market: "On hold. November was last chance for effective rate cut to stimulate stagnant incomes and consumption ahead of what is likely to be another underwhelming Xmas retail period. Also last month was last chance to stem increasing downward momentum in house prices - likely also to ironically be of growing concern now to RBA given its impact on consumer sentiment and sharply reduced economic activity from the property and finance sectors. So set to be on hold for the foreseeable future with the Bank unlikely to cut ahead of the growing likelihood of a downturn in the global economy."

Geordan Murray, HIA: "There is still insufficient evidence of inflationary pressures to justify a rate hike. Declining home prices in Sydney and Melbourne, particularly given the magnitude of the falls, would ordinarily trigger calls to cut rates. This time around the RBA is not likely to be compelled to change policy settings based on home prices. The recalibration of home prices is due to homeowners being forced to deleverage due to both APRA's interventions in the mortgage market and the credit squeeze initiated by the banks."

Jacqueline Dearle, Mortgage Choice: "With little change in inflation and wage growth, plus a positive outlook for the labour market, the economic backdrop suggests the Reserve Bank of Australia will hold the official cash rate at 1.5% in December. Looking ahead, Governor Lowe has said that interest rates in Australia will rise, 'at some point', highlighting the need for borrowers to take a closer look at their financial situation and talk to an expert to ensure they are getting the best deal on their home loan."

Janu Chan, St. George Bank: "RBA rhetoric continues to suggest rates remaining on hold. Although unemployment is continuing to fall, ongoing slow wage growth and low inflation suggests little need to move rates anytime soon."

John Hewson, ANU: "Economy now slowing and household debt constraint."

Jonathan Chancellor, Property Observer: "The bank will now see how the new year unfolds. There is no immediate reason to do anything just yet."

Jordan Eliseo, ABC Bullion: "Despite the heightened concern regarding falling house prices and the knock on effect it will have across the economy, the RBA will hold into the first half of 2019 at the latest. Actual economic data is still relatively strong, though we expect the economy will hit a rougher patch next year, with the RBA eventually trimming rates toward 1%."

Leanne Pilkington, Laing+Simmons: "We see the official cash rate remaining at its current level through the first half of 2019. Subdued housing transaction activity and price declines in some markets make an interest rate increase in the near term an unnecessary risk. A strong labour market will be a key factor supporting the economy as we look to the new year."

Malcolm Wood, Baillieu: "Inflation below target, housing downturn and market volatility."

Mark Brimble, Griffith Uni: "No reason to provide any tightening. With actual rates in the market moving up and a not so positive estimate of the summer retail season, if anything there is more of a case for stimulus."

Mark Crosby, Monash University: "Despite pressure to raise, the RBA will wait until the new year before yielding. International uncertainty may slow down the pace of rate increases in the US, but the Fed and other central banks are still likely to be raising in the new year, making it easier for the RBA to follow suit."

Matthew Peter, QIC: "The RBA managed to raise substantially their growth outlook, while leaving their inflation outlook largely unchanged. Meanwhile, employment growth powers on and wage growth grinds higher. Unless the housing market crashes, the RBA will be raising rates before the end of 2019; long before the market currently expects."

Michael Blythe, CBA: "Low inflation and weak wages growth."

Michael Witts, ING Bank: "It is a matter of the RBA being comfortable with the current state and outlook for the Australian economy."

Michael Yardney, Metropole Property Strategists: "While the economic data suggests an improving economy, wages growth is slow and our property markets are slumping. The many mixed signals means the RBA will maintain the official interest rate on hold at 1.5%."

Nerida Conisbee, REA Group: "There are some really positive economic indicators out there at the moment. In particular, the unemployment rate is very low and this should lead to wages growth. Nevertheless, at this stage, I believe they will hold and review when they meet up again next year."

Nicholas Gruen, Lateral Economics: "They won't cut, though there's a case they should. They'd rather raise, but they've not telegraphed it."

Noel Whittaker, QUT: "There is no desperate urgency to increase rates and they certainly will not drop."

Peter Gilmore, Gateway Bank: "Whilst employment is strengthening, inflation remains moderate. Global market volatility will weigh on the RBA's decision."

Peter Haller, Heritage Bank Limited: "The RBA will not increase the cash rate while inflation and inflation expectations remain low."

Richard Holden, UNSW: "Still missing inflation target. Wages growth weak."

Saul Eslake, Corinna Economic Advisory: "Although the RBA remains optimistic on the outlook for economic growth and unemployment, it still sees inflation returning only 'gradually' to the bottom of its 2-3% inflation target. And some of its recent commentary appears to indicate slightly greater near-term concerns with regard to the possible consequences of declining property prices and greater risk aversion on the part of lenders. All of this suggests that an increase in rates is still some way off."

Shane Oliver, AMP Capital: "The RBA remains between a rock and a hard place. Strong infrastructure spending, improving non-mining investment, a lessening drag from falling mining investment and a fall in unemployment to 5% are all good news. But against this the housing cycle has turned down, this will act as a drag on housing construction and consumer spending via a negative wealth effect, wages growth remains weak, inflation is below target and share market volatility is highlighting risks to the global outlook. So yet again the RBA will remain on hold."

Tim Moore, CUA: "The RBA appears to be comfortable with current monetary policy setting, with the next move more likely to be up than down. The RBA is likely to wait for more evidence that wages growth is rising before increasing interest rates."

Tim Nelson, Griffith University: "No material change since last meeting."

Trent Wiltshire, Domain: "The RBA is comfortable with where the cash rate is and the trajectory of the economy. The unemployment rate has fallen faster than expected and growth is robust. The main concerns are whether wages growth will pick-up and how falling house prices will affect consumer spending and the construction sector."

Other participants: Bill Evans, Westpac; Marcel Thieliant, Capital Economics; Stephen Koukoulas, Market Economics

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Disclaimer

The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.

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