RBA assessment says buyer pessimism could drive property prices down by 20pc
Home prices could drop by 20 per cent from the peak in just over two years if pessimism takes hold in the property market, an internal assessment by the Reserve Bank of Australia says.
Home prices could drop by 20 per cent from the peak in just over two years if pessimism takes hold in the property market, an internal assessment by the Reserve Bank of Australia says.
The fallout from this “downside housing price scenario” would hit broader consumer consumption and the hard-pressed building industry, with real estate agents already seeing big shifts on the ground.
Bank documents released under Freedom of Information showed its concerns about recent weakness in housing prices, particularly in Sydney and Melbourne, and the effect this is having on dwelling investment.
The documents showed that national housing prices fell unexpectedly in the June quarter, reflecting declines in the two major capitals as auction volumes and clearance rates there dropped.
The bank is assuming price falls in Sydney and Melbourne continue over the second half of this year, with its central case scenario for prices in those cities expected to be off by around 1.5 per cent a month. It said at the same time, price growth had slowed in other capital cities and regional areas, and this was expected to continue into next year and prices in these markets would also drop.
The base case would be for national housing prices to decline by 11 per cent peak-to-trough by late 2023, and also hit residential construction.
The internal documents said “a steeper cash rate path and declining housing prices are expected to deter demand for new housing, which weighs on dwelling investment further out”.
In the RBA’s downside housing price scenario, where people become pessimistic about the outlook, housing prices would plunge by 20 per cent peak-to-trough by the end of 2024.
The bank documents said this was roughly twice as large as what it had assumed in its baseline case, and sat below the range of estimates from its models and most market economists.
“This would have an effect on both dwelling investment, especially later in the forecast horizon, and consumption,” the documents said.
The RBA’s warning came as the nation’s weekend auction clearance rate lifted slightly to 62.7 per cent, with 2155 homes going under the hammer.
Sydney recorded a clearance rate of 61.6 per cent, down from 78.5 per cent a year ago, with just 639 auctions across the city, down 3.8 per cent from last week and 34.4 per cent less than the same week last year, latest Corelogic figures show.
Melbourne had a 64.6 per cent clearance rate with 1141 homes taken to auction ahead of the Melbourne Cup long weekend, up from 690 homes last weekend.
Nationally, it marked only the third weekend since June that more than 2000 homes have been listed for auction, with real estate agents reporting increasing pessimism in the market and declining listing volumes, especially in Sydney and Melbourne.
More Coverage
Family and friends farewell ‘The Punisher’
Family and friends have gathered to farewell Melbourne underworld figure Sam ‘The Punisher’ Abdulrahim.
Couple were ‘looking for a caravan’ as cops defend silence
Police believe NSW’s anti-Semitic attacks, including an explosive-laced caravan set to target Jewish Australians, were ‘orchestrated’ as two ‘peripheral’ actors spruiked they were ‘looking for a caravan’.