The global slowdown is wiping off overvaluations, bringing housing prices down, even in notoriously expensive places like Sydney, according to analysts.
Aggressive interest rate cuts from the Reserve Bank, the doubling of the first home buyers grant and falling prices are not enough to stop the downturn because lending is too tight, they are warning.
The latest Australian Bureau of Statistics figures show that loans for new home construction dropped by 4% in August, while loans to buy newly built homes fell by 6%.
The number of new home loans in August slumped for a seventh straight month, the longest slide in 14 years.
'What is worrying is that the banks are cracking down on lending and taking longer to approve loans,' said Paul Dowling, senior analyst at financial services researcher East & Partners.
Louis Christopher, head of property research at investment researcher Adviser Edge, says the weakest housing market is Perth. 'It's a very shallow market, in that the sales volumes are not significant, which means it doesn't take much of a change in demand for there to be short, sharp swings in the marketplace,' he explained.
'The Perth market is off 10% even by Real Estate Institute of Western Australia numbers, and it's the city that we continue to be most bearish on. We would anticipate that a total decline of 20% would not be out of the question, which is getting on for US-style falls,' he added.
The next weakest spot is southeast Queensland, including the Gold Coast and Sunshine Coast. 'Quite often you hear the discussion that Australia is not going to be as bad as the US, because the US had a building boom, which we did not have. That's largely true, but if that situation applies anywhere in Australia, it's southeast Queensland,' continued Christopher.
The cities poised to do the best, he says, are Sydney and Melbourne. 'We think Sydney is likely to hold its relative value quite well, barring a sharp recession. Sydney is still the most expensive city, but when you look at it on a price to relative income basis, Sydney is actually starting to look like one of the cheaper cities. Not many people realise that,' he added.