Macquarie Group Ltd reports Sydney and Melbourne house prices could fall up to 20%

Could Sydney and Melbourne house prices crash?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Economists and house price data academics around Australia have been busily revising their predictions for Australian house price falls lower over the past month after a series of weak auction clearance rates that tend to be a forward indicator of further price falls.

Sydney and Melbourne's house prices have already fallen 4%-7.5% over the past year, although some weak data has led to Macquarie Group Ltd (ASX: MQG) economists issuing a harsh warning to homeowners and investors.

According to reports in The Australian Financial Review the Macquarie securities economists now believe Sydney and Melbourne house prices could crash 15%-20% from peak to trough, which would be a consequence of banks like National Australia Bank Ltd (ASX: NAB) or Commonwealth Bank of Australia (ASX: CBA) making it harder for owner occupier or investor borrowers to get as much credit.

Recently AMP Limited (ASX: AMP) economist, Shane Oliver, also claimed Sydney property prices could fall up to 20%.

This could leave some home owners in negative equity, where the value of their property is less than their loan, although the vast majority of Melbourne or Sydney homeowners would still be sitting on healthy paper profits. This as Sydney for example saw prices increase around an average of 70% over the period 2012-2017.

The core issue bringing house prices down is that banks are willing to extend less credit to borrowers as the bankers have come under fierce criticism during the Royal Commission and as a result of other allegations that many borrowers were obtaining 'liar loans' in understating their monthly expenses or overstating income.

Now the banks have lifted their own margin of safety in calculating how much they will lend to borrowers and more strictly enforced due diligence checks on borrowers house prices are falling.

New South Wales also introduced an 8% stamp duty on overseas buyers from July 1 2017 and since then the property price slide has gathered pace as overseas buyers are also squeezed out the the Sydney market.

Fortunately the Macquarie economists stated prices should not fall any further than 20% "absent a major global economic downturn"….

Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Oil worker using a smartphone in front of an oil rig.
Share Market News

ASX 200 up strongly while energy shares plummet on ceasefire news

ASX 200 energy shares are tumbling with Karoon Energy and Woodside Energy the biggest fallers.

Read more »

Woman on the phone at a hardware store.
Broker Notes

Up 21% this year, how much further upside does Macquarie tip for Metcash shares?

Metcash shares tick many boxes for investors.

Read more »

A young couple sits at their kitchen table looking at documents with a laptop open in front of them.
Opinions

Why I'd buy these top ASX 200 shares next

Growing businesses are compelling. These two are growing significantly.

Read more »

Smiling man with phone in wheelchair watching stocks and trends on computer
Share Market News

5 things to watch on the ASX 200 on Tuesday

A much better session is expected for Aussie investors today.

Read more »

Unsure man analysing data on laptop.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough start to the week this Monday.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Broker Notes

Guess which popular ASX 200 stock Bell Potter just downgraded

Let's see what the broker is saying on this blue chip.

Read more »

Crude oil barrels rocketing.
ETFs

Why did the BetaShares Crude Oil ETF just spike 4%?

This ETF is attracting buyers in today's seller's market.

Read more »

A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »