CoreLogic’s daily dwelling values index to 28 September showed that dwelling values across the five major Australian capital city markets had fallen by 5.6% from peak, led by the ‘big three’ capital cities:
Sharp price falls following rate hikes.
According to forecasts released this week by Morgan Stanley, the correction is only around one quarter of the way through, with the global investment bank tipping a 20% national peak-to-trough decline in values:
Morgan Stanley said that a 20 per cent fall would be the largest nominal price decline in at least the past 50 years, at more than twice the size of the previous largest correction of 10 per cent in 2017-19.
The bank warned that would be a comparable adjustment to what was seen during the GFC in the US, when prices dropped by 19 per cent from 2007-12…
Morgan Stanley’s forecast was based on an expected peak official cash rate (OCR) of 3.60%, which is at the bullish end of forecasts.
Jo Masters – chief economist at Barrenjoey – last week provided a similar assessment, tipping the “largest and longest house price correction in history” with a national peak-to-trough decline in home prices of 16%.
Barrenjoey’s house price forecast is based on a below-consensus OCR peak of 2.85%, and it tips a further 3% to 5% decline in values if the RBA lifts rates in line with bond market expectations.
If Morgan Stanley’s 20% house price crash comes true, it would wipe away all of the price gains accumulated over the pandemic.
The bigger concern is what would happen to the economy given household consumption – the economy’s biggest growth driver – would likely collapse on the back of mortgaged households having less discretionary income and the negative wealth effect.
Hopefully commonsense prevails and the RBA stops well short of Morgan Stanley’s OCR forecast. Otherwise, it risks plunging Australia into a deep recession.
