Shane Oliver of AMP Capital does not expect Australian residential property values to bottom until mid-2021, adding that the market is unlikely to peak again until at least 2025:
“Going forward it’s messy. This coronavirus shock is going to be worse than the recessions of the early ’80s and ’90s and we are still waiting for it to end,” AMP Capital economist Shane Oliver said.
“In the short term we have more downside ahead of us and there’s a lot of debate about how big that downside is going to be. Prices probably won’t bottom before the middle of next year … so it will probably be 2025 at the earliest [by the time prices reach a new high],” he said.
Dr Oliver’s base-case scenario remains a 5 to 10 per cent fall in prices across the combined capital cities with 10 per cent drops in both Sydney and Melbourne.
There is a risk that prices will fall further if Melbourne remains locked down and Sydney follows, he said.
Any recovery in Australian property values probably won’t arrive until Australia’s international border is reopened, allowing the return of mass immigration.
Unlike past housing downturns, there won’t be the benefit of falling mortgage rates given the RBA cash rate is already at rock bottom:
This means that any rebound will be contingent on income and population growth, both of which will remain muted.
There is also the issue surrounding Australia’s army of loss-making investors. According to APRA data, repayments on one-third of property investor mortgages have been deferred, whereas one quarter of property investors (more than half with a mortgage) are suffering negative cash flow on their investment.
Will loss-making investors hold on when the prospects for capital growth are so slim?
There is the clear risk of a feedback loop developing whereby falling prices cause investors to sell, which causes further price falls, etc.
