Rate hikes could see house prices fall

Adam Smith 13 October 2016

house values downHouse prices in Sydney and Melbourne could be in for declines by 2018.

AMP Capital chief economist Shane Oliver has predicted dwelling prices in Sydney and Melbourne could fall between 5-10% in 2018, the Australian Financial Review has reported. In a note to investors, Oliver said apartment prices in the cities could face steeper falls of 15-20%.

Oliver suggested that price declines could be driven by the Reserve Bank beginning to tighten monetary policy, the AFR reported.

“Nationwide price falls are unlikely until the RBA starts to raise interest rates again, and this is unlikely before 2018, at which point we are likely to see a 5% or so pullback in property prices,” he said.

Sydney housing bubble fears

Oliver argued that it was unlikely the prices would decline further than this, barring outside influence, the AFR reported.

“Anything worse would likely require much higher interest rates or recession, both of which are unlikely,” he said.

According to the AFR, Oliver said a combination of high prices, low rental yields, a surge in apartment building and massive capital gains in Sydney and Melbourne presented a risk to property investors.

“Sydney and Melbourne, having seen the biggest gains, are more at risk and so could fall 5-10% around 2018,” he said.

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