Morgan Stanley warns of weakness in property prices

Morgan Stanley, which does not expect cash rates to rise until next year, forecasts growth in the residential property market are at the worst position in three decades.

Analysis by the investment bank Morgan Stanley says credits, regulatory, economic and supply issues are combining to weaken demand after six years of growth and booming prices in major cities.

It warns weakness in price as tightening credit supply pushes economic indicators into negative territory.

"Risks are skewed to the downside," the report concludes.

Analysis conducted by the bank indicates house prices could fall by as much as 6% in annual terms.

"Conditions for housing for the remainder of 2018 continue to look challenging with further regulatory tightening of credit, an increasing stock of properties to be settled, and continued uncertainty on government policy for housing as the election looms."

Morgan Stanley said its indicators covering credit supply, expectations, housing accessibility, mortgage serviceability, rental conditions and demand/supply impact were at 30-year lows.

"Higher compliance with responsible lending guidelines including serviceability and limit assessment will mean lower capacity," the report states.