Falls in home prices may drag the Australian economy into a recession and have wider ramifications for businesses, Morgan Stanley claims.
The global investment bank revealed in a new report that recent weakness in the property markets of Sydney and Melbourne could impact retail spending.
Sydney’s median home price has fallen about 9 per cent over the past year, while Melbourne’s has fallen nearly 6 per cent.
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Prices have also been falling in Perth and Darwin, while remaining largely unchanged in Adelaide and Brisbane.
The falls also appear to be accelerating, with price drops over the December quarter the highest recorded since the early 1980s, according to CoreLogic.
Morgan Stanley said the property downturn has eroded household wealth and may discourage families and individuals from making big purchases.
This would have a knock-on effect for sales of high value items such as cars.
Morgan Stanley’s claims have come on the tail of similar warnings from other market commentators who have pointed out the risks of falling prices to businesses — particularly small businesses.
It has been argued that many small business owners use their homes as collateral for company loans, leaving them exposed to changes in property prices.
The danger is that a lower bank valuation of their homes would result in lenders demanding the debt be reduced, which could create problems for otherwise profitable businesses.
Realestate.com.au chief economist Nerida Conisbee said various other factors were creating additional uncertainty about the direction of the housing market and its wider impacts on the economy.
Chief among them was the looming federal election, due to the Labor Party’s commitment to axe negative gearing, she said.
The banking royal commission was another question mark for the market as it was not yet clear how the finding would impact lenders, Ms Conisbee added.
CoreLogic analyst Cameron Kusher said another litmus test for the market would be February listing volumes.
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He said few homeowners tended to list in the quiet January period and most waited till February.
“If more people list, prices could continue to fall but if homeowners decide to hold off, the market will be a lot different.”