"Sydney and Melbourne, however, are not.

"We had expected by this stage to see some evidence that price declines in these cities were moderating, as the impact of credit tightening started to wind down. But price falls are continuing at a material pace and are broadening through most segments of these markets."

The outlook is getting more bearish among other economists as well.

Prices falling at the lower end

This week HSBC forecast housing prices in Sydney and Melbourne to fall between 12 per cent and 16 per cent from peak to trough, after faster-than-expected declines in dwelling values prompted it to revise its outlook.

That prediction is in line with the 12 per cent to 17 per cent decline predicted for the two largest cities last week by consultancy SQM Research, but less bearish than the 20 per cent fall predicted last month by AMP Capital chief economist Shane Oliver.

Last month, Morgan Stanley revised its initial house price outlook of a 10 per cent fall from peak to trough nationally, to 15 per cent.


The ANZ economists point out that it is no longer just the top quartile of properties in Sydney and Melbourne that are experiencing price falls.

Prices are dropping even at the lower end of the market, despite the support from stamp duty discounts for first home buyers.

ANZ Housing Nov 2019 Nick Lenaghan

Detached houses are faring the worst, but apartment prices are also in decline, ANZ notes. As well, more recently the weakness has spread outside the capital cities.

"Rather than seeing some tentative improvement at this stage, almost every housing market indicator is at the weakest level in a number of years," the ANZ economists wrote.

Auction clearance rates are at the lowest levels in a decade in Sydney and Melbourne. Housing finance approvals are nearly 15 per cent lower than a year ago, and owner-occupier financing has recently started to fall in line with investors, they note.

Below 2017 peak

Meanwhile, the number of days on market is steadily rising across the two cities, and the average property now takes nearly 40 per cent longer to sell compared to a year ago.


A major cause of the downturn, and what makes it unique for the ANZ economists, is that it has been driven by a tightening in credit availability, rather by interest rate hikes.

That tightening hit investors first but now it's starting to bite in the owner-occupier market as well.

On CoreLogic figures released this month, Sydney house values have fallen 8.2 per cent from their peak in the middle of 2017. Melbourne is down 4.7 per cent over the same period.

On ANZ figures, Sydney prices are now 9 per cent below the June 2017 peak, and, by the end of this month, the fall will be larger than the 9 per cent fall in 1988–91.

"We think there is further to go. We now expect housing prices in Sydney and Melbourne to fall around 15–20 per cent from peak to trough.

"This outlook is based primarily on ongoing credit tightening, while additional downside risks are possible changes to negative gearing and the eventual arrival of higher interest rates, whether from higher funding costs or RBA rate hikes.

"Keep in mind that even a price fall of this magnitude takes values in those two cities back to 2015 levels, which we see as an orderly correction. Having said this, there will be some purchasers who will lose money or may have negative equity."