As the Reserve Bank of Australia board meets on Tuesday to consider interest rates for the last time this year, economists are tipping the property downturn will ultimately dwarf that of the early 90s. "The near term indicators of dwelling prices point to further price falls in Sydney and Melbourne," Commonwealth Bank economist Gareth Aird said. Key national account figures to be released on Wednesday will reveal the extent to which the softening property market is crimping economic output, reducing construction and household spending through a "negative wealth effect". "As long as the downturn in the housing market remains divorced from the broader economy the RBA will continue to signal that rates are more likely to go up than down," Mr Aird said.

Loading "But the risk of a negative wealth effect impacting consumer spending is rising the longer the downturn in dwelling prices persists." Double-digit mortgage rates in 1989, combined with weak growth and surging joblessness, helped fuel the fall in home prices during Australia’s last recession. This time, banks – at the behest of regulators – have tightened up on new lending, particularly to investors. Last month, ANZ Bank economists forecast total price falls in Sydney and Melbourne of between 15 and 20 per cent.

A survey economists by finder.com.au released on Monday finds 15 out of 21 agreed with ANZ’s assessment. AMP chief economist Shane Oliver predicts a fall of 20 per cent. A 15 per cent fall from the peak of the market would wipe $145,500 off the median value of a Sydney freestanding house and $108,000 off the value of a median Sydney unit, according to Finder. A 20 per cent fall would knock $194,000 off a house and $158,000 off a unit. Recent home buyers who laid down a 20 per cent deposit could see themselves in negative equity by the end of the year Finder's Graham Cooke In Melbourne, a 20 per cent fall would shave $158,000 off a typical home and $111,000 off a typical unit; and a 15 per cent fall would mean $118,500 off a typical home and $83,250 off a typical unit.

“If we do see these types of price drops in the market, recent home buyers who laid down a 20 per cent deposit could see themselves in negative equity by the end of the year,” Finder’s Graham Cooke said. CoreLogic’s head of research Tim Lawless, said Sydney and Melbourne markets – which together make up over half of the value of Australian housing – were feeling the brunt of affordability pressures, a recent ramp up in housing supply and a reduction in foreign buyers. “The rebalancing towards buyers over sellers in Sydney and Melbourne is clear...with clearance rates tracking in the low 40 per cent range, while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have over recent years," he said. Over the year ended November, Sydney prices are down 8.1 per cent. But double digit falls have been seen in the Ryde region (-12.1 per cent), Baulkham Hills and the Hawkesbury (-11.3 per cent), the Sutherland Shire (-10.9 per cent) and Parramatta (-10.3 per cent). Premium properties are bearing the brunt of selling pressure in Sydney, with the top quarter by value dropping 9.3 per cent and the bottom quarter drooping just 5.7 per cent.