Morgan Stanley forecast property downturn will be the largest since the early 1980s
Morgan Stanley has forecast the current property downturn will be the largest since the early 1980s.
“We now see a 10-15 per cent peak to trough decline in real house prices, from 5-10 per cent previously, which would mark the largest decline since the early 1980s," the investment bank said.
“This downgrade largely reflects the downturn’s extended length, as we expect the relatively orderly declines to date will continue.”
The early 1980s saw a severe global economic recession.
The current modelling now points to larger home price falls arising from new housing supply.
“All housing market drivers remain a drag, but supply-demand balance was the main driver of this quarter’s decline, adding to the drag in previous quarters from tightening credit supply,” Morgan Stanley says, according to the Business Insider website.
“On the supply-side, the run-up in construction from the east coast apartment boom has continued longer than we expected, with completions around 215,000 annualised.
“On the demand side, net migration has fallen noticeably in the past few quarters, trimming our underlying demand estimate to around 175,000.”
“We struggle to see improvement in any of our components over the next year, with pre-existing headwinds of net supply, an RBA on hold and sustained focus on lending standards, all independent of potential negative gearing/capital gains tax changes,” Morgan Stanley says.
With households two times more leveraged to housing than in the early 1980s, the impact on housing equity would be larger again.
“An acceleration of declines are in our bear case, and we will continue to monitor stress points, including arrears trends,” it says.