The worsening property markets in Sydney and Melbourne have further to fall worrying top economists about the damage that will cause to the national economy.
As CoreLogic reported house values tumbling a their fastest rate since the Global Financial Crisis, the latest Scope survey for the Sydney Morning Herald and The Age reveals growing concern about how households will react to those falling prices.
Across all economists surveyed, the average forecast fall in Sydney prices this financial year is 7.6 per cent while for Melbourne the average is 7.2 per cent.
Their forecasts, provided in January, may yet prove optimistic with CoreLogic's measure of housing values released on Friday showing a 1.4 per cent fall in Sydney through January and a 1.7 per cent fall in Melbourne.
Through 2018, Sydney house values dropped by 10.9 per cent. Dwelling values are now down 12.3 per cent since their high in mid-2017, the biggest fall in the nation's largest property market since the 1982 recession.
In Melbourne, house values dropped 10.6 per cent through the year. Total dwelling values across the city have dropped by 8.7 per cent since their November peak, equalling the fall that occurred during the GFC.
In a sign of how widespread house value declines are stretching, every capital city bar Canberra reported a fall in January. Over the past year, regional prices are also negative.
The rate at which values are falling has accelerated over the past three months while the number of homes on the market has soared. In Melbourne, the number of listed properties is 34 per cent up on the same time last year despite a drop in fresh listings.
Among the Scope panel, Industry Super's top economist Stephen Anthony is the most pessimistic on property, predicting a 14.5 per cent drop in Sydney prices this financial year and a 9.7 per cent drop in Melbourne.
He believes a significant wealth effect that will ripple through the nation's two largest cities that will be exacerbated by global economic headwinds.
"We are likely to see household consumption fall to or below two per cent growth rates per year unless households are somehow able to take on even more debt," he said. "That seems unlikely given current bank lending practices."
AMP Capital's chief economist Shane Oliver, who is tipping a 10 per cent fall this financial year in both Sydney and Melbourne, said the overall economy could be hit as people moved to offload their properties before prices fell even further.
"Over the last 12 months we have come to expect even deeper falls in house prices with the tightening in credit conditions and a shift from "fear of missing out" or FOMO towards a "fear of not getting out" or FONGO by some property market participants being major drivers," he said.
Just one Scope panel economist, the University of Melbourne's Neville Norman, is tipping house prices to rise in Sydney and Melbourne across the 2018-19 financial year. He is forecasting a 2.5 per cent gain in Sydney and a 1.5 per cent lift in Melbourne.
We could see large empty eyesore sites stay vacant for lengthy periods ahead.AI Group's Julie Toth
But he is by himself with the every other member of the panel expecting further falls in prices and a flow-on the overall economy.
Figures from the Reserve Bank this week showed credit for housing growing at less than 0.3 per cent in December, the poorest monthly performance since mid-1984.
Investor credit for housing grew by just 0.1 per cent in the month with annual growth at 1.1 per cent, the worst result in figures that go back to 1990.
Australian Industry Group economist Julie Toth said the immediate threat posed by falling prices is a drop in confidence and a reluctance by households to spend.
She said a slowdown in residential construction would flow through the economy by fewer well-paying jobs with a visible sign likely to be evident around major cities.
"We could see large empty eyesore sites stay vacant for lengthy periods ahead," she noted.
One concern connected to housing prices is the fall out from the banking royal commission with Kenneth Hayne's report to be released on Monday afternoon.
The HIA's principal economist, Tim Reardon, believes house price falls will have a "minimal" impact on the overall economy but adds the same can't be said for the royal commission.
"The biggest risk is the royal commission findings are enacted in a way that severely shocks lending again," he said.
BIS Oxford Economics' economist Sarah Hunter said while there may be a wealth effect from falling housing prices, the biggest issue was on the construction sector.
"Dwelling approvals have been trending down since the start of the year, and if we see an acceleration in house price falls this will put further downward pressure on developed activity," she said.