Morgan Stanley

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Wealth management giant Morgan Stanley has said property prices could fall up to 15 per cent given the plunge in rental markets across Sydney and Melbourne's inner-city suburbs.
They suggested the damaging rental market will flow through to price declines and we will see a similar downturn to what we saw when prices dropped between 10 to 15 per cent until mid-2019.
“We expect the rental market to be a key channel of weakness, with any forced selling only later in the year as policy support is eased,” Morgan Stanley said.
“We expect a broad housing downturn, with the rental market in particular likely to weaken, as higher unemployment and a reduction in net migration both work to reduce housing demand, pushing vacancy rates higher and rental prices lower,” Morgan Stanley said.
SQM Research suggested price falls could be closer to 30 percent, however Morgan Stanley expect declines to be gradual in the near-term, given the significant amount of support being provided by the government and banks.
“However, given our expectation that unemployment is likely to stay elevated for some time, these measures will only delay housing stress and forced selling to later in the year,” the bank added.
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Real estate price falls up to 15 per cent: Morgan Stanley

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Property price falls could potentially double previous estimates, down 20 percent rather than 10 percent, according to Morgan Stanley.
The revision comes after weakening sentiment and tighter credit.
Potentially facing declines at their largest since the early 1980s, the investment bank's analysis suggests peak-to-trough property declines are now expected to be about 15 to 20 percent, compared with previous estimates of 10-15 percent.
Evidence of worsening conditions will increase pressure on the Reserve Bank of Australia to cut this year, the analysis reported by Nine Entertainment concludes.
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"We are now watching second-round impacts closely," Morgan Stanley's team of equity strategists concludes about the broadening economic impact of the property slowdown.
"There is evidence of a consumer pullback over Christmas but jobs impact will be key for any negative feedback loop to push Australia into a balance sheet recession," it concludes.
A balance sheet recession describes where high levels of debt and growing nervousness about the economic outlook cause consumers or companies to focus on saving and paying down debt rather than spending or investing, causing economic growth to slow or decline.
The research says credit growth continues to slow with the share of interest-only and investor lending low, despite the Australian Prudential Regulation Authority removing restrictions late last year.
Finance commitments have slowed sharply for investors, it noted.
A 15-20 percent decline in real terms - after allowing for inflation - would be the largest slump since the 1981 to1983 decline, when the median house price in Sydney was $79,000.
Falls in house prices in real terms during the global financial crisis were about 9 percent.
 
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Higher property price falls could emerge in balance sheet recession: Morgan Stanley

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House prices are falling at the fastest rate in 35 years, according to global investment bank Morgan Stanley.
In October Morgan Stanley predicted the downturn, suggesting it will be the <a href="https://www.urban.com.au/news/90655-morgan-stanley-forecast-property-downturn-will-be-the-largest-since-the-early-1980s" target="_blank">largest since the early 1980s</a>.
And December's 1.8 percent house price slide in Sydney put the harbour capital's housing market at a 3.9 percent decline over the last three months of the year, the bank noted according to CoreLogic's figures.
That equates to an annualised figure of nearly 16 percent.
Nationally house prices declined 1.4 percent over December, the largest house price decline since 1983, to be 6.7 percent down over the year.
Morgan Stanley have advised that the likelihood of a disorderly market correction and economic recession has increased. 
Morgan Stanley did note some of the housing weakness in December was "seasonal."
However its model of six key market indicators, ranging from credit supply to house price expectations, suggests approvals and prices will continue to fall with a likely peak to trough decline of between 10 and 15 per cent.
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"A rate of the continuation of the rate of decline in December would be a signal we are shifting to this scenario (a balance sheet recession)," Morgan Stanley's analysis suggested.
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"With entrenched weakness across all aspects of the market, 2019 looks unlikely to hold an improvement."
"Focus is now on the broader economic impact of the ongoing correction. Further details continue to suggest a sustained deterioration in conditions, with few signs of a turnaround," the report warns.
Last year saw a number of the big banks change their house price forecast, having initially saw only small declines over 2018 and 2019.
ANZ revised their housing market forecast in November, instead seeing <a href="https://www.urban.com.au/expert-insights/buying/92798-anz-revise-forecast-to-20-percent-house-price-declines-in-sydney-and-melbourne" target="_blank">prices falling as much as 20 percent</a> in Sydney and Melbourne.
They previously predicted 10 percent falls peak to trough on their <a href="https://www.urban.com.au/news/85485-anz-revise-forecasts-and-see-10-percent-declines-in-sydney-and-melbourne" target="_blank">second forecast revision</a> in June 2018.
In October <a href="https://www.urban.com.au/news/90532-nab-change-forecast-after-confidence-collapses" target="_blank">NAB changed their predictions</a>, suggesting the orderly correction in house prices will continue over the next 18 to 24 months, with Sydney units falling around 10 percent and Melbourne houses over eight percent.
Now AMP Capital's Shane Oliver, Industry Super's Stephen Anthony and Market Economics' Stephen Koukoulas believe the <a href="https://www.urban.com.au/expert-insights/finance/93795-why-the-rba-will-cut-interest-rates-in-2019" target="_blank">RBA will cut interest rates this year.</a>
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House prices falling at the fastest rate in 35 years: Morgan Stanley

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Morgan Stanley has forecast the current property downturn will be the largest since the early 1980s.
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“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.
<p data-gtm-vis-recent-on-screen-6236702_632="1539287775296" data-gtm-vis-first-on-screen-6236702_632="1539287775296" data-gtm-vis-total-visible-time-6236702_632="4000" data-gtm-vis-has-fired-6236702_632="1">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.
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<div class="_1lC_G"> The category measures the gap between completions and the net increase in households.</div>
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“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.
<p data-gtm-vis-recent-on-screen-6236702_632="1539287785316" data-gtm-vis-first-on-screen-6236702_632="1539287785316" data-gtm-vis-total-visible-time-6236702_632="4000" data-gtm-vis-has-fired-6236702_632="1">“On the demand side, net migration has fallen noticeably in the past few quarters, trimming our underlying demand estimate to around 175,000.”
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“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.
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With households two times more leveraged to housing than in the early 1980s, the impact on housing equity would be larger again.
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<div class="_1lC_G">Morgan Stanley suggest the large correction comes with a small risk of a disorderly price decline.</div>
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“An acceleration of declines are in our bear case, and we will continue to monitor stress points, including arrears trends,” it says.
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Morgan Stanley forecast property downturn will be the largest since the early 1980s

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Prestige property values are falling twice as fast as low-end housing, the investment bank Morgan Stanley suggest.
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Daniel Blake, equity strategist, said there is no evidence of any economic, policy or banking changes that might stop the fall in property prices.
And regulatory changes are considered a further headwind.
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The real estate values in top end postcodes has been sliding at an annual rate of about eight percent, compared to four per cent for properties in the bottom, or fourth quartile, its analysis shows.
Rising interest rates, political uncertainty, stagnant incomes and increasing investor nervousness about the Labor Party's proposed changes to negative gearing are contributing to a sharp downturn in lower priced property too, it shows.
"Given the subdued outlook for credit demand and supply, the still elevated level of prices and indebted households, it looks unlikely that the market will trough in the immediate future," the bank's report concludes, adding the underlying weakness is "entrenched," Blake said.
Last month Morgan Stanley analysts released a bearish outlook on the state of the property market.
“Our housing model suggests that both prices and approvals are likely to fall further, and given the subdued outlook for credit demand and supply, the still-elevated level of prices and indebted households, it looks unlikely that the market will trough in the immediate future,” it wrote.
 
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Prestige property values falling twice as fast as low-end housing

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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.
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Morgan Stanley

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