Declines in Sydney, Melbourne home prices could double

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Sydney and Melbourne home prices have now been dropping for over a year, but worse may be on the way, according to Shane Oliver, AMP Capital’s chief economist.

Sydney and Melbourne median values are down 11% and 7%, respectively, from their cyclical peaks, and they are still decreasing in January. Sydney prices are dipping by 1% and Melbourne values are sliding by 1.3%, according to CoreLogic.

Oliver said that the declines in Sydney are possibly not even at their halfway point yet. Those in Melbourne, on the other hand, could quadruple from the current record.

“For Sydney and Melbourne, our base case has been that prices would have a top-to-bottom fall of around 20% out to 2020. However, the further plunge in auction clearance rates and acceleration in price falls late last year suggest a deeper fall, possibly of around 25%, although it’s impossible to be precise. This suggests around another 15% fall in Sydney and more in Melbourne,” Oliver said.

Many would describe that kind of decline as a property crash. However, the magnitude of the drop should be looked at relative to how much values rose in the subsequent cyclical rebound, according to a report by Business Insider Australia.

“A 25% plunge in Sydney and Melbourne may seem like a crash, but given the extent of the prior gains, it’s arguably not.  A 25% top-to-bottom drop would take prices back to where they were in late 2014 or early 2015,” Oliver said.  

Oliver said that several factors contributed to the most recent downturn in the country’s largest and most expensive housing markets. These include tightened lending standards, a record supply of new apartments, a likely change in government, possible alterations to the tax treatment of housing, decreased foreign demand, increasing negative forecasts on prices, and the lack of Reserve Bank of Australia rate cuts.

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