Investment bank JP Morgan has revealed what it believes is the likelihood of a price correction in the Sydney and Melbourne housing market.
The bank performed economic modelling to forecast that Sydney and Melbourne have around a one-in-five chance of a correction in the next five years. The correction is defined as drop of at least 15% in dwelling values.
In the last quarter of 2017, prices in Australia’s hottest real estate markets already began to cool off.
Although Melbourne’s market has been more resilient than Sydney’s, JP Morgan evaluated Melbourne as the riskiest, with a 19% likelihood of a drop. Sydney’s was estimated at 18%.
Adelaide and Brisbane have an 8% chance of a correction and Perth, which has shown signs of a rebound, was given a 7% chance.
The research was conducted by the bank’s interest rate strategist Henry St John, who used price-to-income and price-to-rent ratios to make his calculations.
“If house prices deviate persistently above residents’ ability to pay for them, it suggests a speculative rationale for buying a property,” Henry St John wrote.
A main factor in the drops in Sydney and Melbourne has been the tougher regulations in Australia and China. These regulations have driven Chinese money out of the eastern cities.
Many analysts agree that some kind of correction will take place in 2018, but the size and extent of this correction is disputed.
Source: ABC News