House prices still falling but there could be light at the end of the tunnel
Economist - Investment Strategy & Dynamic Markets Sydney, Australia
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The latest Australian house price data shows prices continue to fall across the nation, particularly in Sydney and Melbourne.
But the pace of the decline is starting to slow a little and falls have become more broad-based, rather than being focused in the two big cities.
In April, house values fell across every capital city apart from Canberra, while regional areas of Tasmania, Victoria and South Australia also avoided a fall.
Perth and Darwin are looking particularly weak, even though house prices in those markets have been falling for a number of years.
More falls forecast as negative sentiment bites
We expect to see further falls in home prices this year, especially as more apartment developments are completed. There is also a number of other negative factors putting downward pressure on property prices including tighter credit conditions, the introduction of comprehensive credit reporting and a fall in demand for properties from foreign buyers which are all also dampening conditions in the market.
A contributing factor is the negative sentiment in the property market, which has been in decline since late 2017. AMP Capital is forecasting a further fall in property prices of five per cent around the country, still centred in Sydney and Melbourne.
Impact of interest rate moves
Interest rates are also a contributing factor to house prices. While the Reserve Bank of Australia (RBA) declined to cut the cash rate in May, we are forecasting it will cut interest rates in June by 0.25 per cent, with another cut later in the year, with the official cash rate to fall to one per cent by the end of the year.
The RBA may have decided not to cut the cash rate in May to avoid becoming embroiled in the Federal election campaign and to give it further opportunity to assess conditions in the labour market over the next month.
Despite increasing economic pressure, the RBA has been reluctant to cut the cash rate, but lower inflation and a weaker growth outlook mean a rate cut is likely, in part to offset the negative wealth effect from the falling property market and depressed consumer spending.
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Important notes
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