Housing prices to fall through 2019

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Citigroup predicted that Australia’s property downturn will hurt economic growth, with prices likely to decline through 2019, according to a report by Bloomberg.

Housing prices across the nation are predicted to drop 10% to 15% from recent highs, led by Sydney and Melbourne. According to Citi analysts led by Paul Brennan, these cities are likely to see “slightly larger” declines than other places.

The analysts noted, though, that this projected decrease – potentially the largest in recent times – would reverse the overvaluation of previous years.

The report said that the downturn is likely to be a “protracted but manageable adjustment,” with “muddle through still the most likely scenario.”

The negative outlook is supported by the latest CoreLogic data, which showed that Sydney prices were down 7.4% in October from the previous year, while Melbourne prices were down 4.7%. Nationally, house prices decreased 3.5% last month from 2017.

Given the state of things, it is possible that the weakening property market will pressure the central bank in keeping the interest rates at a record low through late 2019.

Last week, Reserve Bank of Australia Governor Philip Lowe said he’s closely monitoring the cooling housing prices in Sydney and Melbourne, though the effects of falling home prices are being moderated by a robust economy and labour market.

“Even assuming a continued orderly correction in the housing market, there will be a sizable drag on economic growth from the downturn in housing construction, the expected further slowdown in housing credit growth and some spillovers to consumer spending,” Citi said.

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