Melbourne house prices forecast to plummet by 10 per cent — ANZ report

MELBOURNE house owners have been warned to brace themselves, with the prices of their homes predicted to plummet by 10 per cent, according to new analysis from major lender ANZ. This is the reason why.

MELBOURNE homeowners can expect to see close to $1000 a week stripped from the value of their house over the next 18 months, banking giant ANZ has warned.

Melbourne house prices are set to fall by 10 per cent as tighter lending standards curb the flow of new money into the property sector throughout this year and next, a new analysis from the major lender has found.

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The downturn is set to wipe $83,400 from Melbourne’s median house price by the time it is finished.

The gloomier outlook from ANZ on the health of the property market was issued as investment bank Macquarie cautioned “the main thing to fear is fear itself” from a cyclical property correction which is already under way.

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

ANZ senior economists Daniel Gradwell and Joanne Masters said the nation’s $6.9 trillion housing market had cooled “beyond our initial expectations” and Melbourne and Sydney were on track to post a 10 per cent fall in prices from “peak to trough”.

“The housing market has slowed further than we expected and we have materially downgraded our price outlook,” the economists said in a report titled Coming Back to Earth released on Tuesday.

“We now expect to see peak-to-trough price declines of around 10 per cent in Sydney and Melbourne, with smaller declines elsewhere.”

Melbourne median house prices peaked at about $834,000 at the start of the year, according to property data and analytics firm CoreLogic. The median house was worth $821,000 — down 1.6 per cent from the peak — at the end of May, the latest ­CoreLogic numbers show.

If ANZ’s forecast plays out, the median house price will shed another $70,400 to end 2019 worth $750,600. It means the median house price is set to drop by about $970 a week every week through to December next year.

While the expected fall in prices will trouble new and recent buyers, prices rose 60 per cent over the five years to the end of 2017 as a string of interest rate cuts turbocharged the market.

The ANZ report said unlike other periods of falling home prices, the downward cycle was being driven by banks pulling back on the amount of money they are willing to lend, rather than rising interest rates. “Investors in particular are finding it harder to access credit, given ongoing policy changes across the lenders,” it said.

The bank also warned an interest rate rise would add to downward pressure on prices.

Macquarie analyst Justin Fabo said while house prices in Melbourne were likely to continue to fall through to the end of 2019, financial regulators “would be largely delighted with the orderly cooling of housing markets so far”.

The key risk in the latest contraction lay in the demand side, Mr Fabo said.

“If households were to lose faith in housing markets, given the current elevated prices (particularly in Sydney) the demand for credit (particularly by investors) could fall more than we currently expect,” he wrote in a note to clients.

“The main thing to fear for Australian housing is fear itself.”

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