Australian house and unit prices could keep falling further in 2019 with many credible financial institutions tipping that prices could fall anywhere between 15%-20% peak to trough in Sydney for example.
That's the reported opinion of analysts at Australia & New Zealand Banking Group (ASX: ANZ), while others like AMP Limited's (ASX: AMP) Shane Oliver have also gone on the record to tip Sydney's prices to fall up to 20%.
That's the bad news if you live in Sydney, but outside the Harbour City falls are expected to be far more moderate to flat in 2019.
The National Australia Bank Ltd (ASX: NAB) for example is forecasting flat national prices in 2019, with HSBC forecasting falls in the mid-single digits.
Some cities such as Hobart for example are generally expected to keep rising after a strong 2018, as home hunters look to more affordable areas.
However, in expensive areas such as Melbourne and Sydney there are plenty of reasons to expect more price falls in the 12 months ahead. Here are five warning signs of this outcome.
- Auction clearance rates in Sydney and Melbourne have been consistently under 50% for a couple of months now. This weekend Domain.com reported Sydney at 45%, Melbourne at 43% and Brisbane at 40%. This suggests that even though vendors are marking property prices lower, 1 in 2 of them are still not finding buyers.
- Credit crunch – a phrase made famous by the GFC that Australia avoided the worst off may return to Australia as home loan borrowers struggle to obtain credit from banks due to tighter checks on an applicant's income and expenses on top of limits generally being restricted lower.
- Royal Commission – The fallout from the humiliation of the banks and their top executives at the Hayne Royal Commission may still flow through to housing markets as more regulation leads the banks to pull back on riskier lending to investors for example.
- RBA cash lending rates are currently at a historically low 1.5% despite Australia's economy posting decent jobs growth and not experiencing a recession in 26 years. Therefore the RBA does not have room to move lending rates much lower, in fact most economists still expect its next rates move to be higher, which would place more pressure on house prices.
- U.S. lending rates – benchmark debt rates such as US 10-year treasuries and plain cash, bank note, or term deposit rates are all rising as the US economy heats up. Higher debt rates mean higher wholesale funding (or borrowing) costs for Australian banks such as major lender the Commonwealth Bank of Australia (ASX: CBA). If it's more expensive for a bank to borrow that cost is often passed on to home loan borrowers in the form of higher interest rates to protect margins.
