UBS predicts Sydney, Melbourne house prices to drop 20 per cent


Banking giant UBS has warned that Australia’s falling house prices could be about to plummet even lower still.

The alarming claim was made following the release of the latest Australian Bureau of Statistics (ABS) home loan figures, which revealed the number of new mortgages taken out across the country plunged by nearly 20 per cent last year — the lowest point since the global financial crisis.

That is a big clue that houses are about to get even cheaper, the bank’s economics team said.

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The team, led by George Tharenou, claimed the Reserve Bank will also be pushed into slashing rates as a result of falling home loans, which economists believe may have been caused by investor disinterest, stricter lending practices and speculation about the royal commission.

“Worryingly, even first home buyers retraced sharply after previously recovering, albeit holding a 16 per cent share of total loans, the highest since 2012,” UBS said, according to The Australian.

“While investors corrected from a record more than 40 per cent share in 2015, to 28 per cent now, they remain high globally. Separately, the trend of developer loans declined 25-30 per cent year-on-year, to the lowest level since 2014, but recent stability is a mixed sign for building approvals.

“The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the royal commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20 per cent with risk of 30 per cent’, to ‘25 per cent with rising risk of 30 per cent’.”

UBS also claimed the results would be even more dire for our two biggest cities, Sydney and Melbourne, which could see prices drop almost 20 per cent — more than double the 7 per cent plunge recorded to date.

CoreLogic also recently tipped values in Sydney and Melbourne to fall by 18-20 per cent from peak to trough this year.

But Realestate.com.au chief economist Nerida Conisbee said she believed the predictions were a “bit dramatic”, particularly for Melbourne which had seen a far smaller drop compared to the NSW capital.

“They are running Melbourne and Sydney together, which doesn’t seem to be case, because in Sydney there is a lot more weakness than what we are seeing in Melbourne, so that’s the first thing that’s inconsistent — what we’re seeing is that price and search data in Melbourne is holding up far better,” she told news.com.au.

“In terms of peak to trough, Sydney has already dropped by 10 per cent but when you look at Melbourne, it has only dropped by 4 per cent, so Melbourne would have to go a lot further to get to that 20 per cent decline.”

Instead, Ms Conisbee said she expected to see more of the same, predicting Sydney’s prices would likely continue to record modest slides in the lead up to both the state and federal elections, with investors and first home buyers waiting to see who will win, and what changes if any were in store for negative gearing and capital gains tax.

She said she believed Sydney was more likely to experience price falls closer to 11 per cent and 6 per cent in Melbourne until June.

“There are quite a few steps to get to before we reach that worst case scenario so it’s difficult to try to predict what will happen, but the good news is the fact there’s very low unemployment in Sydney in particular at the moment, and what seems to be happening is not so much a distressed market, but a lot of uncertain people sitting on their hands,” Ms Conisbee said.

Historically, listings remained low before elections before recovering afterwards as certainty returned, she added.

“The market seems to be stuck at the moment but the federal election will be the decider on where we see prices going in the second part of the year,” Ms Conisbee said.

She also stressed that some markets, like Adelaide and Hobart, weren’t noticing price drops at all while others like Brisbane remained flat.

“It’s UBS’s job to be ultraconservative and negative in terms of outlooks for the market but there’s a lot that can happen which makes it very, very difficult to predict,” she said.

Continue the conversation @carey_alexis | alexis.carey@news.com.au





Source link Finance News Australia

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