But the fact that house prices are high compared to incomes and rents does not mean that they will fall, unless there is a trigger such as rising interest rates, banks that make it difficult to obtain of a home loan or rising unemployment, he said.
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He thought property prices were overvalued at around 35% when compared to rents and adjusted for inflation, or 25% when prices were compared to their long-term trend, but stressed that no predicts falls of this magnitude.
Their base case forecast is that prices will fall by 10 to 15 per cent nationally and slightly more in Sydney and Melbourne, with the risk that national falls could be between 15 and 20 per cent. per cent.
This would be bigger than the fall from 2017 to 2019, but less than a simple comparison of property prices with rents.
“Saying it’s a bubble, that it will burst, has proven to be too negative a way of looking at things for the last 20 years,” he said.
Westpac senior economist Matthew Hassan expects property prices to continue to fall, but not to a level where they would be in line with fundamentals such as rents and income.
Property prices are high compared to income, but they are unlikely to go down enough to be in line with the basics. Credit: Dylan Coker
“That’s why these measures are so heavy, they assume there’s a gravity that they’re capturing these measures that we’re going back to, and I don’t think that’s the case,” he said.
“It’s a funny old bubble that lasts a decade.”
When comparing property prices and rents, he said the broad measures were not as appropriate as looking at the price of investment properties compared to rents, as these types of homes can differ significantly from wider housing stock. Unit prices have not risen as fast as single-family home prices during the pandemic.
Hassan said rising interest rates would affect most, if not all, home buyers, but are not listed in the table. Credit growth has held, but not to the extreme, and established homeowners have been paying off their mortgages earlier than expected, he added.
Prices for single-family homes have risen faster than units. Credit: Louise Kennerley
“International comparisons are always really complicated and the reason they have done it this way is that these are the measures by which we have the best internationally comparable data,” he said.
“The conclusions are more or less the same: New Zealand and Australia are in a phase of correcting their markets and, given our views on inflation and interest rates, this needs to continue and is setting it as an important fix “.
PRD Real Estate’s chief economist, Dr. Diaswati Mardiasmo, said that while property prices are high compared to incomes, now wages are starting to rise.
And revenue measures do not take into account the increased demand for a rise in migration as borders reopen, nor of assistance to the first-home buyer in recent federal and state budgets. NSW, he said.
Prices would also depend on the supply of new housing, as the construction boom struggles with the shortage of materials and labor.
“The only reason the RBA is raising the cash rate is because they believe the economy is strong enough to be able to withstand all of that,” he said.