Continued economic uncertainty could cause house prices to fall by as much as 5 per cent in the first six months of 2012.
According to AMP’s chief economist Shane Oliver, the Reserve Bank of Australia will be forced to cut rates at least twice more in a bid to stimulate buyer confidence.
“Australian house prices are likely to fall another 5 per cent or so in the first half as buyers hold back on economic uncertainty, before rate cuts reach a critical mass and greater confidence leads to a recovery in the second half,” Mr Oliver said.
Mr Oliver said the Reserve Bank now looks likely to cut rates in the first two times it meets in the ney year.
“The minutes from the RBA’s December meeting highlighted the concern it now has regarding Europe and this appears to have been the main motivation behind the last rate cut.
"With Europe likely to get worse before it gets better, our key trading partners in Asia continuing to slow, anecdotes and profit warnings pointing to soft domestic retail sales, and inflation likely to remain benign, we expect the RBA to cut interest rates again in February and March, taking the cash rate down to 3.75 per cent,” he said.