Why property downturn is deepening recession risk
Melbourne and Sydney's joint housing market slide could contribute to a recession, a leading commentator has declared.
Louis Christopher of SQM Research said the deepening downturn was "shaping up to be the worst … we've seen since the 1990 recession", with a peak-to-trough fall of up to 30 per cent potentially on the cards.
He said househunters shouldn't rush to buy into Australia's two biggest cities.
SQM's latest Housing Boom and Bust Report states Melbourne dwelling prices - taking into account houses and units - have fallen 4.7 per cent this year and are expected to shed up to 9 per cent in 2019.
This marks a dramatic turnaround from last year's 12.1 per cent growth.
Mr Christopher has predicted a peak-to-trough decline of at least 12-17 per cent for Melbourne and Sydney by the end of 2019.
He said could rise to 20-30 per cent if the downturn continued into 2020 - a plausible outcome if "the Reserve Bank does not intervene in the market" and the Labor Party repealed negative gearing, assuming it won next year's federal election.
He dubbed the latter "risky policy in this type of market".
"There's an elevated risk that we could go into recession with Sydney and Melbourne having such big downturns," he said.
"Many people are fearful of buying."
Mr Christopher blamed "restrictions on credit" for kickstarting the fall, and said negative market sentiment was feeding it.
He outlined four scenarios for Melbourne's 2019 market, the most likely being a 6-9 per cent decline in dwelling prices.
This outcome assumes the Reserve Bank will keep the cash rate unchanged or cut it in late-2019, the economy will slow, and a Labor federal government be elected.
If, on top of this, the banks implemented a 0.2 per cent rate rise independent of the Reserve Bank, Mr Christopher tipped the decline to worsen to 6-11 per cent.
But a 0.5 per cent official rate cut early in 2019 could ease the fall to 3 per cent at worst, and a continued Liberal Government could bring about a 4-7 per cent dip.
Sydney was the nation's worst performing capital with a 7.4 per cent price decrease, likely to continue with 6-9 per cent falls next year. Hobart was the strongest, with a 9.7 per cent rise in 2018 and further 5-9 per cent increase tipped for 2019.
CoreLogic's Cameron Kusher has predicted a 10-15 per cent peak-to-trough fall for Melbourne.
Wakelin Property Advisory director Jarrod McCabe forecast a 3-5 per cent price dip next year and an overall 8-10 per cent decrease from the market peak.
He expected the decline to be concentrated in the first half of the year before "flattening out".
"The price growth we've experienced in the last four to five years isn't the norm … and wasn't sustainable," he said.
"We're now in the buyer's market. There's definitely no rush to buy, but if you find the right property, you should, because buying needs to be a long-term decision."
He said parts of the state's market were performing better than others, notably villa units in inner and middle Melbourne, and regional Victoria as a whole.