The past few weeks have seen a number of developments that suggest property prices could bottom earlier and higher than has been widely expected.
The election outcome removed a key threat explains AMP Capital's chief economist Shane Oliver, along with several other factors “that also help”.
“The combination of the removal of the threat to property tax concessions, earlier interest rate cuts, financial help for first home buyers and APRA relaxing its 7 per cent interest rate test, points to house prices bottoming earlier and higher than we have been expecting,” Oliver said.
“As a result, we now expect capital city average house prices to have a top to bottom fall of 12 per cent, of which they have already done 10 per cent, rather than 15 per cent and to bottom later this year.
“However, given still high house prices and poor affordability, still very high debt levels, tighter lending standards, and rising unemployment a quick return to boom-time conditions is most unlikely,” Oliver added.
This week the RBA signalled that rate cuts could be on the way after governor Philip Lowe's comments “at our meeting in two weeks’ time, we will consider the case for lower interest rates” as a measure to prevent unemployment rising.
As a result, Oliver says AMP Capital expects 0.25 per cent rate cuts in June and August.
“And that the bulk of these will be passed on to borrowers given the recent reduction in bank funding costs,” Oliver said.