House prices falls to be bigger than predicted

Do house price falls in Sydney and Melbourne spell disaster for Australia's economy?

Do house price falls in Sydney and Melbourne spell disaster for Australia's economy? Photo: Getty

House prices across the country will fall further than expected in the next year, according to new analysis.

Across the capital cities, prices are predicted to drop a further 7.7 per cent – a much sharper decline than the 3 per cent fall predicted in January, according to rating’s agents Moody’s Analytics.

Unsurprisingly, Sydney and Melbourne will continue to lead the downturn, with predicted drops of up to 15 per cent in some inner-city regions.

Melbourne’s decline is predicted to be the sharpest, with 11.4 per cent still to go. In January, it was tipped to only fall by a further 6 per cent.

The city’s inner-east will be hit the hardest, where prices will fall by a further 16.3 per cent, followed by the inner-south which is expected to fall 14.2 per cent, according to the report.

In January, it was tipped that Sydney would only have a further 3.3 per cent fall in house prices, but values in the city are now forecast to fall 9.3 per cent.

The inner-west and Ryde are predicted to suffer the sharpest declines, with 14.4 per cent and 15.8 per cent respectively.

Prices in Adelaide and Canberra have also been downgraded, with those cities being hit by further falls of 1 per cent and 3.2 per cent, respectively.

Perth is expected to see a fall of 7.6 per cent, while Darwin will see 0.6 per cent.

The feedback loop

Economist and author of the report, Katrina Ell, said the fall in values was being driven by weaker consumption and stagnant wage growth.

“Both houses and unit prices, particularly in Sydney and Melbourne, are coming in much weaker than what we expected previously,” she told The New Daily.

“There’s a feedback loop, we’ve got a weaker housing market which is flowing through to weaker consumption and at the same time you’ve got ongoing wage-growth weakness and overall slower activity in the economy, so it’s all those factors combined.

“People are getting nervous. Last year people were dipping into savings to fund consumption, but now they’re not because they’re concerned about saving, not spending.”

The only capital city to continue to buck the trend is Hobart, where prices are predicted to rise by 4 per cent over the next year.

“Hobart doesn’t follow the broader trend of the Australian economy – it follows its own trend,” said Ms Ell.

“It’s avoided the downturn, it’s benefited from low interest rates and improved incomes, it’s not exposed to the down cycles that Sydney and Melbourne have been because it didn’t have the same strong run-up.”

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