Fears of housing crash, credit crunch overcooked: Goldman Sachs

Despite a housing downturn, plenty of factors point to robust economic growth continuing, says Goldman Sachs.

Houses in inner Sydney. Picture: AAP

Dire predictions about the state of the housing market are overstated and driven by fear, with a new report from Goldman Sachs showing the cooling economy is proving resilient.

The report says suggestions of a housing market crash and credit crunch are overstated.

Notwithstanding headwinds on the housing front, easy financial conditions, improving conditions in the mining states, the largest pipeline of public infrastructure since the mid-1980s, and increasing household incomes are all economic elements Goldman Sachs chief economist Andrew Boak believes will keep the economy growing at an above trend pace.

“A lot of the fear is being generated by anecdotal reports on the Sydney and Melbourne housing market. Some risks are real, but overall they look manageable,” he said

Mr Boak believes the discussion around the housing market can be too Sydney-centric at times.

“I think there are lots of reasons the economy can do better than the doomsday consensus.

“Yes, growth will slow but something close to 3 per cent over the next few years is quite a feasible scenario. That will keep downward pressure on unemployment rate and upward pressure on wages and inflation.”

Goldman Sachs economists believe negative gearing and capital gains tax amendments promised under a federal Labor Government will be minimal.

While acknowledging that investing in property will become less attractive, modelling shows the changes will only impact returns in the case of no/small capital gains.

With only one in 20 Australians negative gearing property, Mr Boak says that impact will not as big of a deal as people are making out.

The idea that a credit crunch is pushing down house prices is largely connected to Sydney and Melbourne, with price falls mostly restricted to those markets.

Markets outside of the bubble, such as Brisbane and Adelaide, are not being affected by the cooling conditions.