HSBC Forecasts Further Drop in Australia House Prices

(Bloomberg) -- HSBC Holdings Plc Australian chief economist Paul Bloxham has joined the ranks of local property bears.

Housing prices in Sydney and Melbourne, the two hottest markets during the recent boom, will decline between 12 percent to 16 percent from their peaks, Bloxham said in a research note Tuesday. They're already well on their way, with Sydney prices down 8 percent, and Melbourne off 5 percent.

Nationwide, prices will fall between 3 percent to 8 percent in 2019, having declined 2 percent this year, he said.

Read more: What's Killing Australia's Property Boom

The call is a change of tune for Bloxham, who last year said soaring home prices were being driven by strong demand and a lack of supply, rather than indicating a bubble. In May, he forecast Sydney prices would dip between 3 percent to 5 percent in 2018, while Melbourne prices would rise as much as 3 percent.

“A cooling was expected, but the price falls have been larger than previously forecast,” Bloxham wrote Tuesday. “The cooling has been due to a reversal of factors that drove the boom in the first place.”

These include a supply shortage, which has been worked down by a building boom; falling interest rates, which have since stabilized; strong foreign demand, which has weakened due to constraints on foreign buyers; strong growth in lending to investors, which has been constrained by tighter prudential settings; and expectations of capital gains, which drove investor activity, but have eased.

UBS Group AG analyst Jonathan Mott last week warned Australian house prices could plunge 30 percent under a deep-recession scenario in which the nation's 27-year economic expansion ends, unemployment climbs and the central bank cuts interest rates to zero.

--With assistance from Emily Cadman.

To contact the reporter on this story: Peter Vercoe in Sydney at pvercoe@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe

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