“Australians have the view that property prices go through these wild ups and downs when, in fact, when you put it in perspective of historical performance…capital cities go through periods of strong growth and quite often the Prices go up, but when we hit the recession, it’s lower. in comparison,” he said.
While the median home price in the capitals combined was unlikely to return to pre-pandemic levels, which would mean a 25 percent decline, Powell said the current drop could be steeper than the last one in 2017. -19, when prices fell by 7.9 percent.
“The depth of the recession could be the deepest we have ever seen. We are likely to see further decline in Sydney and Melbourne. It is realistic to expect a 10 to 15 per cent drop in house prices in Sydney. But it is very unlikely that prices will return to pre-pandemic levels,” Powell said.
In previous housing booms, home prices rose an average of 32.7 percent, and the rise lasted an average of 33 months.Credit:Flavio Brancalone
AMP Capital Chief Economist Dr Shane Oliver said the factors that have driven Australia’s long and strong property booms, followed by short and shallow recessions, have changed, marking a turning point in Australia’s price cycles. country housing.
“Over the last 30 years, rates have come down, every time they hit a new low, that allowed people to brace themselves, driving prices to a new high. It also meant that any descent was relatively brief. That started to change in the slump of 2017-19,” Oliver said.
“It is quite possible that the long-term reduction in interest rates that contributed to those relatively brief lows and those larger and longer rises is already over.
Meanwhile, in previous recessions, home prices on average fell 3 percent and lasted nine months.Credit:Simon Schluter
“We may be getting to a point where recessions are getting deeper and that’s because we started with higher levels of debt and higher debt-to-income ratios.”
With record house prices and debt levels, Oliver said house prices were unlikely to see gains from previous magnitudes made possible by lower rates.
He predicted that if the Reserve Bank cuts the cash rate again in the middle of next year, the recession could last 18 months.
Barrenjoey’s senior economist, Jonathan McMenamin, said falling interest rates, which have meant cheaper home loans, over the last three decades have largely fueled the rises, and that has now come to an end.
“This recession that we expect will be the biggest and deepest recession since the early 1980s,” McMenamin said.
“We are seeing one of the largest and steepest increases in rates since at least the early 1990s.”
He said there has been a structural decline in interest rates for a long period of time, but that trend has now ended, meaning the same magnitude of increases in property prices are now unlikely.
He said that while Sydney and Melbourne, which have highly leveraged homeowners, may see bigger property declines, smaller capitals like Brisbane will see a shallower decline.
“We estimate that Sydney’s median household income is only 4 per cent higher than Melbourne’s, but the amount people borrow for the median household is more than 30 per cent higher.”
Charging
Commonwealth Bank Australian economics chief Gareth Aird said the longevity of the recession would ultimately be influenced by whether the Reserve Bank raises the cash rate.
“They’re going to have a big influence on what this recession looks like, how long it’s going to last and how far prices are going to fall,” Aird said. “If the RBA cuts the cash rate in the second half of next year, you can expect house prices to rise.”
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