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House prices could drop by 10% despite improving clearance rates

24 June 2020

Auction clearance rates might be looking a little healthier of late but economists say a housing oversupply and uncertain buyers will see house prices still drop by around 10 per cent this year.

EY Oceania chief economist Jo Masters told Australian Financial Review that dealing with possible second waves of the coronavirus would be a challenge to the market at the same time as a large amount of supply was hitting it.

"There are still risks including a second wave of coronavirus and there's still going to be a lot of uncertainty," she said.

"I think a 10 per cent fall in house prices is where the consensus is sitting, in my view."

Ms Masters said there were around 180,000 dwellings that have started construction and were due to be completed soon.

"That means we have dwellings in the pipeline coming through that's double the underlying demand that we're going to need,” she said.

"It's pretty challenging conditions for the market having supply exceeding demand. Overall, I think it's going to be a challenging couple of years."

Despite the jump in auction clearance rates, prices have still trended down as vendors revise asking prices to maintain interest from buyers spooked by economic uncertainty.

Domain senior analyst Nicola Powell told AFR that sellers revising their asking prices showed that price expectation had changed quickly thanks to COVID-19.

"This is a leading indicator of where prices are heading. Price discounting peaked in April but it bounced back up slightly across capital cities,” she said.

“I think we’re going to see further price weakness, particularly in Sydney and Melbourne.”

“I do think that we will see them both down by the end of the year.”

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