Australia growth to be hit by housing ‘perfect storm’: AMP

Bloomberg

Australia’s tumbling property prices could shave up to 1.2 percentage points from economic growth in 2019 as the decline hits housing construction and consumer spending, according to AMP Capital Investors Ltd.
Sydney and Melbourne prices will drop a further 10 percent next year, taking their peak-to-trough fall to 20 percent as a “perfect storm” smacks housing, AMP Chief Economist Shane Oliver said in a report. He predicts the Reserve Bank of Australia will cut interest rates in the second half of 2019 and end the year with a cash rate at 1 percent from the current 1.5 percent.
“The positive feedback loop of recent years of rising prices bringing higher demand and further price gains has given way to a negative feedback loop of falling prices leading to reduced demand and further declines,” Oliver said of housing.
“This could all be made worse if immigration levels are cut sharply.”
Sydney’s property market slump has reached a new milestone, with values falling further than the late 1980s when Australia was on the cusp of entering its last recession. The downturn in Australia’s most populous city is accelerating as tighter mortgage lending standards crimp the amount people can borrow and as nervous buyers sit on the sidelines.
A direct detraction from economic growth as the housing construction cycle turns down of about 0.4 percentage point a year. Reduced demand for household equipment as dwelling completions top out and decline.
This is now likely to go into reverse, detracting around 0.6 percentage point from GDP growth.