Author: Dr Shane Oliver, Head of Investment Strategy and Chief Economist, published on 09 April 2018.
The key points are as follows:
- Property prices in Sydney and Melbourne likely have more downside, but a crash is unlikely in the absence of much higher mortgage rates, much higher supply and a long continuation of recent high construction activity.
- Other cities will perform better.
- Property investors should remain wary of Sydney and Melbourne and focus on laggard or higher yielding markets.
Australian capital city home prices fell 0.2% in March, their fifth monthly fall in a row. This has brought annual growth down to 0.8% from 11.4% in May last year. Most of the recent weakness relates to Sydney and to a less extent Melbourne.
This is unusual in that property price downturns are usually preceded by significant interest rate increases. Consistent with the fall in Sydney and Melbourne property prices, auction clearance rates and home sales have also fallen.
How far will prices will drop? Will the weakness spread to other cities? And what will it mean for the broader economy?