House prices in Melbourne expected to fall by 10 per cent

HOUSE prices in Melbourne are falling more than expected and are forecast to drop by 10 per cent. The market’s recovery may also take longer, according to the ANZ bank.

THE fall in housing prices will be “quite a bit larger” than previously expected and recovery may also take longer, according to the latest ANZ June housing update.

The ANZ Banking Group now believes housing prices will fall 10 per cent from their peak in Melbourne and Sydney, with Sydney “faring slightly worse”.

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“Prices in Sydney have been falling for most of the past year, and now sit 4.2 per cent lower than the peak of July 2017,” the update said.

“Melbourne was initially more resilient, but has since recorded slightly larger price falls than Sydney in each of the past three months.

“In contrast, prices are still rising in Hobart and Canberra, while the post-mining boom decline in Perth prices continues to ease.”

Melbourne’s property prices could dip by 10 per cent.

It believes that the cycle is being driven by different factors than previous downturns, which coincided with mortgage rate increases or rates hitting elevated levels.

Interest rates have only increased slightly since 2016 and 2017, and servicing costs seem to be around the historical average, even though mortgages are a lot higher than in the past.

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“The primary driver behind this slowdown in prices is the availability of credit, rather than the cost of credit,” the report states.

“Banks have responded to regulatory requirements by implementing a combination of lower loan-to-income ratios, lowering estimates of rental income from investment properties and raising expense estimates.”

However, the ANZ believes the market is likely to stabilise later this year unless there is more credit tightening.