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AMP betting on 20% fall in property prices

By James Mitchell
3 minute read

Top forecaster Shayne Oliver believes there is still plenty of room for property prices to head south as homes weaken to GFC levels. 

Australian capital city dwelling prices fell another 0.9 per cent in November marking 14 months of consecutive price declines since prices peaked in September last year. This has left prices down 5.3 per cent from a year ago, their weakest since the GFC.

The decline is continuing to be led by Sydney and Melbourne.

Sydney dwelling prices fell another 1.4 per cent and have now fallen 9.5 per cent from their July 2017 peak. Meanwhile, Melbourne prices fell another 1.0 per cent and are down 5.8 per cent from their November 2017 high. 

Perth also saw prices fall by 0.7 of a percentage point, but Hobart and Darwin saw prices rise by 0.7 of a percentage point. Prices in Canberra rose 0.6 of a percentage point and Brisbane and Adelaide prices rose 0.1 of a percentage point. 

“The decline in property prices is being driven by a perfect storm of tighter credit conditions, poor affordability, rising unit supply, reduced foreign demand, the switch from interest only to principle and interest mortgages for a significant number of borrowers, fears that negative gearing and capital gains tax concessions will be made less favourable if there is a change of government, falling price growth expectations and FOMO (fear of missing out) risking turning into FONGO (fear of not getting out) for investors,” AMP  Capital chief economist Shayne Oliver said. 

“These drags are most evident in Sydney and Melbourne because they saw the strongest gains into last year and had become more speculative with a greater involvement by investors.

“Ongoing weakness in these two cities is evident in very weak auction clearance rates and auction sales volumes. Recent auction clearance rates averaging just below 40 per cent in Sydney and Melbourne are consistent with ongoing price declines of around 7 to 10 per cent per annum.”

The economist believes the decline in Sydney and Melbourne property prices has much further to go as Comprehensive Credit Reporting kicks in, making it even harder to get multiple mortgages.

Many homebuyers will be watching out for changes to negative gearing and capital gains tax, which could become the new reality after a change of government at the coming federal election. 

“In these cities we expect to see a top to bottom fall in prices of around 20 per cent spread out to 2020,” Mr Oliver said. 

“However, the plunge in clearance rates and the uncertainty around credit tightening and tax concessions indicate that the risks are on the downside. So there is more to go yet.”