Credit Suisse says rapidly cooling house prices in Sydney may lead the Reserve Bank of Australia (RBA) to cut interest rates.
The investment bank’s economics and equity teams found that the sudden halt in Chinese investment is closely correlated with Sydney’s housing prices.
According to Credit Suisse, Sydney’s housing market has not only cooled but “arguably turned cold.”
Tighter lending rules, sky-high prices and a crackdown on Chinese investment, have been the primary factors in the Sydney market’s decline.
Auction clearance rates are now hovering around the 60% mark there has been an overall drop in house sales.
According to CoreLogic, Sydney joined Perth and Darwin as one of three capital cities to see a decline in capital gains values in the three months ending October.
“Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events,” said CoreLogic head of research Tim Lawless.
Credit Suisse noted that if it’s model regarding Chinese capital flows is correct, the RBA will need to cut rates to deal with the market slowdown.
“Without a healthy housing market, the economy does not have other growth drivers to lean on, ” Credit Suisse concluded grimly.