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However, "the releases in recent weeks have been close to levels of roughly 7 to 8 percent lower prices," he said.
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As such, we are now allowing 20% lower prices in these cities, again spread to 2020, which would bring average prices back to the first half of 2015. "
Potential changes to the negative capital gains tax and capital gains if the Labor government were elected could also "have the potential to weigh heavily on prices."
To date, annual price decreases in Sydney have reached 6.3%, while those in Melbourne have decreased by 4%.
MPA's revised outlook follows Morgan Stanley's downgrade last week, which saw real estate prices fall in Sydney and Melbourne by 10 to 15 percent (down from 5 to 10 percent).
Mr. Oliver spoke of the continued decline in bid reconciliation rates in Australian capitals, which were down to 50.7% last week.Credit:Peter Rae
Oliver added that prices in Perth and Darwin are now "nearing their lowest level", while Adelaide, Brisbane, Canberra and Hobart are expected to post better performances until 2020.
So, what does this mean for the economy in general?
Oliver said the prospect of a real estate crash – 20% or more in the domestic market – is still low. Population growth will help support prices and mortgage stress "tends to be overestimated".
The negative effects of a 20% drop in Sydney and Melbourne will result in a slowdown in housing construction, a reduction in credit growth and barriers to consumption caused by a negative wealth effect.
This will be offset by strong growth in infrastructure spending and business investment. The net effect will result in annual economic growth of 2 to 3%, accompanied by low inflation.
As a result, Oliver maintains his view that the RBA will not raise rates by 2020 at the earliest and "given the risks of falling real estate prices, it could be forced to reduce its rates."
This story was first published in Business Insider. Read it here or follow BusinessInsider Australia on Facebook.
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