"We note that Australia has had six previous episodes of declining housing prices since 1980, with the peak-to-trough range of 2½ per cent to 8 per cent. Nearly all previous corrections occurred following interest rate rises, a drag unlikely to be repeated anytime soon in this cycle." Home loan growth has slowed since late last year, after the housing market came off the boil and banks tightened their underwriting standards, and analysts expect the trend will continue. Banks have warned customers will probably find it tougher to get a home loan in future as they tighten lending standards in the wake of the royal commission. The Reserve Bank echoed those comments in the minutes of its June meeting released on Tuesday, where it left the cash rate on hold at the record low of 1.5 per cent for the 22nd consecutive month. It noted that loan approvals to investors and owner-occupiers had eased, consistent with a decline in demand for credit as well as lenders tightening their requirements. Credit:ANZ Research "Falls in housing prices in Melbourne had been concentrated in inner-city areas, whereas the declines in Sydney had been more widespread," the board said. Members noted housing prices were still 40 per cent higher in Sydney and Melbourne than at the beginning of 2014, and auction clearance rates in Sydney and Melbourne had fallen to their lowest levels in a number of years.

ANZ calculated that if changes to lending policies caused a 10-15 per cent decline in new loan sizes, prices would fall 5-10 per cent year on year. "However, this impact should not last forever. In previous bouts of tightening the market has adapted to the new conditions instead of continuing to deteriorate. The credit impulse (the change of the change in credit) is a key metric to detect the turning points in credit availability and therefore prices," the bank said. Loading Nationwide, dwelling prices are 1 per cent lower than a year ago. Sydney has been the main driver of the weakness, falling 4.2 per cent year on year, while Melbourne had recently joined in. Prices in the major cities fell 0.7 per cent in the March quarter, according to ABS data on Tuesday. ANZ expects housing prices around the country to fall by 4 per cent in 2018 and a further 2 per cent in 2019.

"Sydney and Melbourne are expected to be the primary drivers of this fall, as their high prices and highly leveraged households will be more sensitive to tighter credit conditions and rising interest rates," ANZ said. ANZ is predicting two rate hikes next year, which it notes would be another headwind to house prices – "though rates will only rise if the housing market has stabilised in the first place". Macquarie Securities is also predicting a 10 per cent fall in Sydney house prices from their mid-2017 peak. The main thing to fear for Australian housing is fear itself . Macquarie "We expect the current modest rate of decline in national dwelling prices to continue for some time, but this would suggest a fall of only around 2 per cent over the course of 2018," Macquarie Securities economists Justin Fabo and Ric Deverell said in a note.

"Over the next couple of years, we expect national prices to have fallen 4-6 per cent from the peak, with Sydney prices forecast to fall another ~6 per cent, to be down around ~10 per cent from the mid-2017 peak." Mr Fabo and Mr Deverall said the real risk was that if households lost faith in housing markets, the

demand for credit (particularly by investors) could fall more than it currently expected. "The main thing to fear for Australian housing is fear itself ... ," they said. With Eryk Bagshaw