The worst is not behind us: Morgan Stanley's tip 8% price decline

Residential property prices are expected to slump by about 8%, according to investment bank Morgan Stanley.

The macro-prudential controls, rising funding and compliance costs and tougher approvals checks on property investors will also contribute to loan growth falling from 6% to 4%, it warns.  

"The risk is skewed to the downside given an increasing focus on responsible lending," the Australian Financial Review reports. 

"The banks' modelling suggests the likely decline in prices will continue throughout 2018," the report noted adding the fall will be in "high single digits". 

Both the quantity and availability of credit is the key constraint on growth, the report states.

"With national prices down 1.5% from the peak late last year, it is clear the housing market has turned," the report states.

"But in contrast with others in the market who view the worst as behind us, we expect prices to fall further throughout 2018, as credit availability is tightened further and a stretched consumer reassesses the outlook.

"While the backlog of approvals not yet completed remains high, we expect some projects to be shelved given tighter credit conditions."

However ANZ economists have suggested “the worst is behind” the property market predicting a 2 per cent gain in 2018 and 4 per cent next year.