House prices forecast to drop by up to 7%

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Analysts from Citi have forecast house prices to fall by up to 7 per cent by 2018 amid lending crackdowns and lowering household debt.

Apartments in inner city areas in Melbourne look set to be the worst affected as they also have oversupply issues putting added downward pressure on prices.

House prices in Melbourne have finally started to fulfil expectations by slowing in the month of April adding credibility to the forecasts from Citi.

The slowing house price growth and cooling of the housing boom is being driven by the banking regulator lending crackdown, rising bank interest rates, falling foreign investment and increasing supply ratios.

“APRA’s tightening measures probably contributed to the April prices result, but Easter and school holidays may also have contributed to the slow-down,” Citi wrote in their forecast report.

“Given the stretched house price variations in Sydney and Melbourne some correction would seem likely as supply continues to catch demand.”

“The largest price falls would be higher-rise, inner-city apartments in Melbourne and Brisbane given their greater potential for oversupply.”

“Either way, we aren’t expecting large enough price falls to trigger a downturn in the economy, but the downside risks have risen as house prices and household debt have continued to increase briskly.”

The forecasts of Melbourne’s cooling market are already being taken seriously by the Victorian Government who have reduced their expectations of stamp duty take over the coming period.




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