The drop in house prices in Australia this year will be the worst in the world, one of the world's major credit rating agencies has predicted.
Fitch Ratings believes house prices will fall by another 5 per cent this year and values won't recover until 2020.
The report released on Wednesday predicted Australia's housing industry would be the worst performer out of 24 countries for the second year running.
Prices have already dropped by 6.7 per cent since their peak and Fitch said this was mostly due to lower investor demand thanks to tougher restrictions on lending.
A report from the banking royal commission due in February could tighten the availability of credit even more.
However, Fitch noted that high household debt made economies more vulnerable to shocks in the financial sector and borrowers more exposed to downturns.
"Australian borrowers continue to be vulnerable to financial shocks, despite falling prices, as their very high household debt level (which is the highest in this report relative to GDP at about 120 per cent), is coupled with mostly variable interest rates," the report noted.
Australia's household debt-to-GDP ratio is at 121 per cent and is high compared to other countries.
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Despite the price falls, affordability remains low as the country is also among those with the highest home price-to-income ratios.
Fitch predicts house prices will continue to fall 5 per cent this year before stabilising in 2020 thanks to above-trend GDP growth and strong net migration.
In Sydney and Melbourne, where larger peak-to-trough falls of 11.1 per cent and 7.2 per cent have occurred, Fitch expects price declines to continue at a similar pace.
It notes that the most expensive properties have experienced the largest declines of 9.5 per cent.
Fitch has also warned Australians could struggle to keep up with their mortgage payments as house prices fall and it takes longer to sell a property.
House price falls in Sydney are only 0.1 per cent away from being the worst on record, according to property experts CoreLogic.
RiskWise Property Research CEO Doron Peleg said he expected to see a worse-than-expected decrease in the number of homes being built, particularly units.
He said about 258,938 units were being built in the next 24 months, which equalled about 10 per cent of the current stock available. The huge number of units in the pipeline means many developers were struggling to meet pre-sale and other targets.
Many developers have now shifted their focus from off-the-plan units to house-and-land packages which are easier to sell.
"Getting finance from the major banks, however, is the biggest problem for developers — as well as investors," Peleg said.
"Banks are applying greater scrutiny to the living expenses declared by customers in loan applications.
"In fact, Westpac now requires brokers to supply more details about customer spending when applying for a mortgage, breaking it down into 13 different categories, up from six."
Last month, realestate.com.au released fresh data on active property listings that have been on the market the longest and found new estates tended to idle on the market for the longest amount of time.
Realestate.com.au chief economist Nerida Conisbee said it was likely to be a "short-term problem" as the popularity of new estates tend to soar over time.
She said they also represented a great opportunity for first homebuyers.
"Prices will probably continue to fall so there is no rush to buy in these areas at this time — it means you can find the exact property you want and try to get a better deal," she said.
For those who want to buy, Consibee said the best deals can now be found in Tasmania and Victoria.