Big city prices to fall fur­ther

Money Magazine Australia - - IN BRIEF -

Home prices have con­tin­ued to fall, with cap­i­tal city dwelling prices drop­ping for the 10th month in a row in Au­gust. “Tighter bank lend­ing stan­dards, poor af­ford­abil­ity, ris­ing unit sup­ply, fall­ing price growth ex­pec­ta­tions and FOMO (fear of miss­ing out) risk­ing turn­ing into FONGO (fear of not get­ting out) for in­vestors are push­ing prices down in cities that have seen strong gains since 2012, ie Syd­ney (which saw prices rise 72% over the five years to its Au­gust 2017 high) and Mel­bourne (57% over the five years to its Novem­ber 2017 high),” says Shane Oliver, head of in­vest­ment strat­egy and chief econ­o­mist at AMP Cap­i­tal.

Oliver ex­pects the de­cline in Syd­ney and Mel­bourne to con­tinue but pre­dicts other cap­i­tal cities are likely to per­form bet­ter as they have not come off the same boom. Home prices in re­gional cen­tres are likely to hold up bet­ter.

“Over­all, Syd­ney and Mel­bourne are likely to see a top-to­bot­tom fall of around 15% spread out to 2020 but for na­tional av­er­age prices the fall is likely to be around 5%,” says Oliver.

“A crash-land­ing re­mains un­likely in the ab­sence of much higher in­ter­est rates or un­em­ploy­ment but it’s a risk given the dif­fi­culty in gaug­ing how se­vere the tight­en­ing in bank lend­ing stan­dards will get and how in­vestors will re­spond as their cap­i­tal growth ex­pec­ta­tions col­lapse at a time when net rental yields are around 1%-2%.” Also see page 68.

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