Sydney and Melbourne house prices are expected to plunge by 10 per cent in coming months with a major bank forecasting worse news than anticipated.
ANZ has admitted it underestimated the downturn in Australia's two biggest real estate markets, as tighter bank lending rules bite and wipe an average of $100,000 from recent peak median house prices in both cities.
'In our previous housing chart pack, we noted that the housing market had stabilised at the start of 2018,' ANZ economists said in its Coming Back To Earth report.
ANZ senior economist Daniel Gradwell said Sydney house prices were set to suffer an even more dramatic slide than Melbourne.
'From peak to trough, we see sharper falls in Sydney rather than Melbourne just because prices in Sydney have gone up so much over the last four or five years,' he told Daily Mail Australia today.
Sydney's median house price peaked at $1.17 million in June 2017, with private treaty sales and auctions factored in by the Domain group.
Mr Gradwell said Sydney house prices were set to decline by 10 per cent, or by $117,000, from this peak a year ago, with prices already down 5 per cent since that time.
'Keeping in mind that Sydney prices have already been falling for the best part of a year, so we're basically saying that we're probably around the halfway point,' he said.
With Melbourne's median house prices peaking at $914,518 in February 2018, Mr Gradwell forecast a 10 per cent drop, or $91,452 from this peak.
Across Australia, ANZ is forecasting housing prices to drop by 4 per cent in 2018 followed by another 2 per cent in 2019, before the Reserve Bank of Australia raises interest rates twice in the second half of next year, from the current record low of 1.5 per cent.
'The housing market has slowed further than we expected, and we have materially downgraded our price outlook,' the ANZ report said.
The Australian Prudential Regulation Authority's crackdown on banking loans for housing investors was blamed for weighing down the Sydney and Melbourne housing markets.
The more affordable Brisbane, Adelaide and Hobart markets have so far been cocooned from this downturn.
Mr Gradwell said double-digit price rises in Sydney, and to a lesser extent Melbourne, were unsustainable, with people on an average $82,000 full-time salary already spending 40 per cent of their monthly $5,000 take-home pay on mortgage repayments.
'It's important to note that it's just a correction rather than a collapse,' he said.