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

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »