Australian house prices in 2012 will rely heavily on the fortunes of the Eurozone and its ongoing debt crisis.
This is the view of SQM Research managing director Louis Christopher who has predicted a “relatively bullish scenario” where house prices will return to growth in 2012, though he conceded that this would depend largely on Europe muddling through without a default.
“House prices will likely rise in 2012 if there isn’t a credit squeeze in this country,” he said. “It appears that the market is very sensitive to interest rate changes... Now that we have had a half point change which has been passed on in full, there is a greater chance – in our opinion – that dwelling prices will rise.”
Christopher added that the danger Europe presents is if large scale banking defaults in the Eurozone cause a major credit squeeze in Australia, in turn causing the banks to "ration housing credit" and reduce LVRs.
"If the squeeze is large enough, banks could come up with additional ways to reduce their balance sheets. At its worst, this literally could include calling loans simply because the loan-to-value ratios have risen too high due to drops in property prices," he said.
This scenario would be a "last resort" for Australian banks as it would trigger even steeper declines in house prices, Christopher said.
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