Sydney to decline 17 percent peak to trough: SQM

The total peak to trough declines in Sydney and Melbourne could reach 12 and 17 percent by the end of 2019, according to new research from SQM Research.

The most likely 'base case' prediction from SQM is that the two biggest housing markets will decline a further six to nine percent by the end of next year.

The base case forecasts assume no changes in interest rates, a Labor win at the next Federal Election with Negative Gearing repeal and CGT changes coming into effect 1 July 2020. 

The second scenario, which relies on an out of cycle rate hike by the banks and an official RBA rate cut in late 2019, suggests prices could decline up to 11 percent in both Sydney and Melbourne.

SQM also believes that, should the RBA not intervene in the market, 2020 could also record price declines due in part to the repeal of negative gearing, which is a firmly stated Labor party objective.

This would be the worst case scenario, which could see total peak to trough declines in the range of 20% to 30% for our two largest capital cities.

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SQM managing director Louis Christopher said if the RBA does not respond and/or the bank lift interest rates again in 2019, it is possible the peak to trough falls in Sydney and Melbourne could be even more than this negative range.

"But we do take the view that the downturn in Sydney and Melbourne will be a significant negative for the overall economy, and so the central bank will eventually respond at some point and cut interest rates," Christopher said.

“The looming changes of Negative Gearing and Capital Gains Tax are increasingly weighing on investor sentiment. Quite frankly implementing these changes during a housing downtown is very risky and may trip the economy into a recession,” Christopher added.

SQM’s "base case"" forecast is for national dwelling prices to fall between -6% to -3%, which is a continuation of the current falls of 4.5% over the past 12 months.

Other cities will record mixed results with Hobart expected to have a third year of strong price rises of 5% to 9%.

SQM Research also anticipates a recovery in the Brisbane and Perth rental markets in 2019 with Canberra to also record solid rental increases. However Darwin will continue to record steep declines in both rents and prices as the local Northern Territory economy enters recession.