House prices ‘falling by $1000 a week’ in Australia

HOUSE prices in Sydney and Melbourne are now falling by $1000 per week but a full-blown collapse remains unlikely in the absence of a major global shock, a leading economist says. Deloitte Access Economics partner Chris Richardson’s latest business outlook says Australia’s growth has continued to accelerate despite the “house price fall we had to have”. CoreLogic figures show national house prices fell for the 12th consecutive month in September, with Sydney and Melbourne now 6.2 per cent and 4.4 per cent down from their respective peaks in July and November 2017. “House prices are falling by about $1000 a week in both Sydney and Melbourne and that pace has accelerated a bit of late,” Mr Richardson said. “Mostly because they were super-silly. It’s not ‘oh dear’ rates of falls but it’s certainly notable. The phrase I’m using is gravity is finally catching up with stupidity.” He predicts another 5-10 per cent in Sydney and Melbourne. “Another way to think of it is five years from now, Australian house prices may not be much different than where they are today, and that will be a good thing,” he said. “This is not a house price collapse, we are returning to more sensible house prices in a reasonably orderly fashion. It’s not causing particular damage to the Australian economy.” Australian families now have the second highest debt to income ratio in the world behind only the Swiss. “That’s just a slightly uncomfortable position to be in, other things equal,” he said. “Basically we went from a China boom to a house price boom. We cut interest rates and housing prices took off. That did smooth the way for us, but it has left us vulnerable.” Despite the Reserve Bank keeping the official cash rate on hold at its record low of 1.5 per cent for more than two years, three of the Big Four have begun to slowly raise mortgage rates due to higher overseas funding costs. At the same time, Chinese investment in Australian property has collapsed, banks have tightened their lending standards to local borrowers and are expected to further tighten in the fallout of the banking royal commission.