An theage panel of eight economists predicts more falls - an 8.7 per cent decline this year in Sydney and a 9.7 per cent drop in Melbourne.
"Given many small businesses borrow against the value of their family home in order to invest in their business, if their family home is worth less, their ability to borrow could be more constrained and it could also lead to the banks becoming a bit concerned about their lending exposure as well."
"The interesting thing about the Australian Prudential Regulation Authority's intervention is that nobody modelled it," he says. "I have no issue with APRA, I think they were forced to do the heavy lifting because the government refused to do anything about negative gearing." Oliver, one of the first major economists to predict the RBA will this year cut interest rates to offset the fallout from falling house prices, says the current downturn was directly related to the surge in prices. "We had a price boom that fed on itself and now we’ve got a price correction that is also feeding on itself," he says.
"The policies initially targeted investors as they were dominating finance and credit growth, and were driving up house prices to overheated levels throughout 2014-2016. Research by the RBA released this month by governor Philip Lowe found that a 10 per cent increase in net housing wealth increased consumption by 0.75 per cent in the short run and by 1.5 per cent in the long run.Sales of cars are the most affected by this wealth effect. But sales of clothing and house furnishings also move around depending on whether property prices are rising or falling.
Previous falls in prices have been associated with an economic shock, such as a sharp pick-up in unemployment, or driven by higher interest rates as the central bank sought to suppress inflation. The current conditions - official interest rates at 1.5 per cent, everyday mortgage rates under 4 per cent - have never been associated with price falls.
"My feeling is that it is right on the balancing point. It really depends on what happens to prices over the next one to two years if they do start falling more substantially."Eddie Dilleen, 26, who owns 16 properties, says he will wait for the market to bottom in Sydney, where he has so far avoided investing heavily. "I’ll start buying in Sydney for investment purposes in another 12 to 24 months," he says.
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