Nascent 2017 falling property prices to exceed 6 percent or more through current cycle: Chris Joye

After forecasting house price rises every year since 2013, economic commentator Chris Joye has reaffirmed his April 2017 advisory that the property boom is over.

He forecasts that prices will fall in 2018, despite falling unemployment.

He noted Sydney prices started sliding in September this year with the national five-capital city index falling by October, according to CoreLogic numbers.

"Whereas Sydney values have slumped 1.9 per cent, prices across the five capital cities have corrected by a more modest 0.4 per cent.

"And there will likely be the normal seasonality afflicting this data as values typically pull back in December," Joye told readers last week in The Australian Financial Review.

"It's also interesting to observe that there has been no capital appreciation in the stubbornly ebullient Melbourne market since November," he added.

Joye suggests when Australia's jobless rate falls below 5 per cent in 2018, the central bank will have no choice but to raise rates once or twice "assuming it acts rationally."

"This will reinforce the magnitude of the expected correction," he anticipates.

Joye looks to the past for solid precedents.

"After the last big bubble that kicked off in earnest in 2001 and ended in December 2003, Sydney prices fell 6.3 per cent in the following three years.

"In the 12 months after their 2003 peak, dwelling values in Melbourne and across the five largest cities declined by 3 per cent and 3.5 per cent respectively."

"As a minimum I expect prices to match this result.

"Assuming 100 basis points or more of rate increases, my central case is a 10 per cent plus drawdown in what should be a relatively benign mean-reversion in Australia's otherwise unprecedented house price-to-income ratio."

Joye, a portfolio manager with Coolabah Capital Investments which invests in fixed-income securities, noted the heftiest fall on record was 8.3 per cent in 2008.

He wrote in October while the next downturn may cause "temporary hysteria" in markets, the tremendous deleveraging of bank balance-sheets, coupled with the de-risking of their business models and a notable improvement in the austerity of lending standards, should ensure they are well-placed to absorb what will be, by international standards, a modest lift in home loan losses.

His April column noted his concerns about "the runaway housing boom."

To address the issue, the Australian Prudential Regulation Authority (APRA) had introduced tough new macroprudential constraints on interest-only lending, in an effort to stifle irresponsible lending and borrowing decisions, in a move backed by Treasurer Scott Morrison.

Joye anticipated a softer auction clearance rate to continue throughout 2017, in tune with a pronounced deceleration in price momentum. 

“I expect this to continue over the rest of the year, which should alleviate the concerns of rating agencies animated by the blindingly obvious financial stability risks propagated by the RBA's cheap money policies,” Joye wrote in October. 

He noted Perth home values had slumped 10 per cent since their December 2014 peak with Joye then predicting that this could eventually happen in Sydney and Melbourne, thus wiping out half the equity of all first time buyers.