Fitch still too optimistic on Aussie house prices

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By Leith van Onselen

Global ratings agency Fitch yesterday released a report on the Australian housing market predicting a further 5% fall in 2019 and a peak-to-trough decline of 12%:

According to Fitch:

“We expect a national peak-to-trough home price drop of 12 per cent in Australia with Sydney and Melbourne posting larger declines in 2019,” Fitch’s report said.

“We expect price declines to continue at a similar pace in 2019 in Sydney and Melbourne, where larger falls have occurred – peak-to-trough declines of 11.1 per cent and 7.2 per cent”.

Fitch then expect property prices to stabilise in 2020 on the back of increased net migration and above trend GDP growth.

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As at December, Australian capital city dwelling values had already fallen by 6.7%, according to CoreLogic. Moreover, the quarterly pace of decline has steepened, currently running at around 12% annualised across the five major capitals:

Driven by heavy falls across Sydney and Melbourne, where prices are plunging at annualised rates of between 14% (Melbourne) and 16% (Sydney):

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Given we are yet to feel the full impact of the credit rationing likely to arise from the banking royal commission, whose final report is due out next month, along with the budding high-rise apartment deluge and concerns around build quality, the withdrawal of SMSF lending, as well as the pull back from foreign buyers, property price declines should easily exceed 5% in 2019 and could near 10% or more.

Moreover, 2020 is likely to see the introduction of Labor’s negative gearing and capital gains tax reforms, which should further drag down investor demand and prices.

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Given these stiff headwinds, there is a strong likelihood of Australia experiencing a bona fide housing crash whereby peak-to-trough declines across the capital cities exceeds 20%, driven by even heavier falls across Sydney and Melbourne.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.