Australian house prices have suffered some of the biggest falls in the developed world in the past 12 months and are likely to continue to decline over the next 18 months, according to a new report.
The latest Knight Frank global house price index reveals that Australia's housing prices have declined by 6.7% on a year-on-year basis to the first quarter of 2009.
The fall puts Australia in the bottom third of all countries in the index. Australia ranked 34th for house price growth in 46 countries, dropping from 12th in last year's survey.
Matt Whitby, national director of research at Knight Frank Australia, says that the downward pressures in residential markets have been predominantly in the "prestige" sector, but that will change as unemployment rises.
"At the top end over $3-$4 million we've seen 12% or 15% declines, and there'll be pressure on that sector for the next 12 or 18 months. Once the broader economy gets impacted with unemployment those pressures will flow down into middle class workers over the next two years."
Whitby says that after the Government's first home owner's grants disappear, interest rates will be on the rise and unemployment along with it.
"The next six months will hold firm because of lower interest rates, the grants and clearly rents are rising in most of these areas. People are saying ‘I might as well buy.' But as people lose their jobs, they are more likely to rent than buy up."
"At the moment, people have got their jobs and are enjoying low interest rates, but 2010 is when the lower end will start to see some pressures."
Latvia was the worst performing market on a year-on-year basis, with prices free-falling a massive 36%. Dubai and Singapore followed with falls of 32% and 23% respectively.
Israel and the Czech Republic were the top performers with growth of 10.9% and 9.9% respectively.
The United States, which has been at the core of the sub-prime mortgage meltdown, has seen prices drop 16.9% over the last 12 months.
Knight Frank head of international research, Nick Barnes, said in a statement that housing markets around the world will struggle through the rest of the year.
"Recent projections from the Organisation for Economic Co-operation and Development (OECD) do little to promote a more optimistic viewpoint - GDP growth is forecast to drop by an average 4.3% in the OECD area in 2009 while by the end of 2010 unemployment rates in many countries will reach double figures for the first time since the early 1990s."
The index also shows 72% of countries in the index recorded a fall in values from 12 months earlier, up from 59% in the previous quarter.
The survey claims several countries had not reported their housing data for the first quarter, "although over half had shown annual and/or quarterly price falls at the last time of reporting".
"Nonetheless, the shorter term future direction of most underlying economies suggests that the world's residential markets are likely to continue to suffer for some while."
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