Sydney and Melbourne house prices could fall by almost half in worst crash since 1890s

House prices could fall by more than 40 per cent in the ‘worst crash since the 1890s depression’, a new report warns. Founder of LF Economics, Lindsay David, who has been warning of the looming property crash for half a decade, predicts a 15 to 20 per cent plummet in the upcoming year alone.

CoreLogic data for January showed Sydney and Melbourne’s prices were down 12.3 per cent and 8.7 per cent compared to their respective peak figures in July and November 2017, with Melbourne falling at “the fastest rate ever seen”.

Mr David explained:

“We think there’s a chance property prices could fall by half in Sydney and Melbourne over the long run. I wouldn’t be surprised by falls of at least 40 per cent. When all hell breaks loose you’ve only got so many buyers out there.”

The report, named Let the Bloodbath Begin, sets out how the five stages of a property market downturn:

1. Prices drop after several years of rising real estate values and spiralling mortgage debt.
2. Due to a fall in prices, a small number of property developers cancel projects.
3. Property prices drop to levels that begins to worry homeowners.
4. Recession starts and panic will set in, causing residential construction to cease. Borrowers default and unemployment levels will rise.
5. Property prices stagnate at a new low but ordinary Australians have trouble getting credit, despite the government bailing out the banks. The rich and private funds buy homes at rock-bottom prices, leading to a slow rebound.

‘In 18 months to two years’ time, we could definitely be in recession’

Digital Finance Analytics founder, Martin North, believes Sydney and Melbourne’s average house prices would plunge by 30 per cent from their 2017 peaks under the current economic circumstances, and by more than 40 per cent if an international shock occurs, such as Brexit in the UK.

Mr North went on to predict both Sydney and Melbourne house prices will continue to drop for the next few years before flat-lining as the economy fell into a recession for the first time since 1991:

“This is going to be a significant fall over two to three years but then probably a sideways move – this is a decade-long episode that we’re facing into.”

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