Shane Oliver, chief economist at AMP Capital, has urged investors not to consider current price falls across Sydney and Melbourne as indicative of housing bust.
In his latest analysis, he recommended Australian investors broaden their horizons and look for opportunities in other housing markets this year.
“Other cities and regional centres offer more attractive rental yields than Sydney and Melbourne, and falling prices in Sydney and Melbourne will throw up opportunities at some point,” he said.
Mr Oliver said whilst Sydney and Melbourne remain at risk, with his revised outlook predicting a potential 25 per cent drop in prices to 2020, other cities have not experienced the level of boom enjoyed by the major capitals and therefore are unlikely to crash.
“While prices in other cities are being affected by credit tightening, they were less speculative and so are less vulnerable,” he said.
“Perth and Darwin have already seen prices fall back to decade-ago levels. Other capital cities and regional centres generally didn’t have a boom and so are unlikely to have a bust.
“[For] the rest of Australia, flat prices to modest gains are likely.”
Mr Oliver said the broader outlook suggests an Australiawide housing crash is unlikely, as market fundamentals remain strong.
“Bust is unlikely unless we see much higher interest rates or unemployment – neither of which are expected – driving a sharp rise in defaults and forced property sales or a collapse in immigration, which would collapse demand,” he explained.
“Strong population growth is still driving strong underlying demand for housing.
“While mortgage stress is a risk, it tends to be overstated and is unlikely to be a generalised issue unless interest rates or unemployment shoot higher.”
Mr Oliver encouraged investors to consider their property interests as long-term investments, which still offer value as a source of diversification in portfolios.
“Over the very long term, residential property adjusted for costs has similar returns to Australian shares. So, there is a role for it in investors’ portfolios,” he concluded.