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Australia housing will muddle through downturn: Citi

Sydney

AUSTRALIA'S property downturn will weigh on economic growth, with prices set to keep falling through 2019, Citigroup said.

Nationwide housing prices will fall between 10 per cent to 15 per cent from recent peaks, with "slightly larger" declines in Sydney and Melbourne, Citi analysts led by Paul Brennan wrote in a research note.

While that would be the largest decline in recent times, it would just reverse the overvaluation of recent years.

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It's likely to be a "protracted but manageable adjustment," with "muddle through still the most likely scenario", the report said.

Citi joins a chorus of banks turning more bearish on the housing market.

HSBC Holdings on Tuesday said housing prices in Sydney and Melbourne, the two hottest markets during the recent boom, will decline by between 12 per cent and 16 per cent from their peaks, while UBS Group last week warned prices could plunge 30 per cent under a deep-recession scenario.

The decline is already well under way, with Sydney prices down 7.4 per cent in October from a year earlier, and Melbourne off 4.7 per cent.

Nationally, house prices dropped 3.5 per cent last month from a year earlier, according to the latest CoreLogic data.

The cooling property market increases the likelihood the central bank will keep interest rates at a record low through late 2019, Citi said.

In a speech in Melbourne on Tuesday, Australia's Reserve Bank governor Philip Lowe said he was closely watching the slump in housing prices in Sydney and Melbourne, though it's being cushioned by a strong economy and labour market.

"Even assuming a continued orderly correction in the housing market, there will be a sizeable drag on economic growth from the downturn in housing construction, the expected further slowdown in housing credit growth and some spillovers to consumer spending," Citi said. BLOOMBERG