The housing market is in for the longest and deepest downtrend in modern history.

For many economists, the Australian housing market should brace for what could be the longest and deepest downturn in Australia's modern history.

In a report from The Guardian, economists said the market is about to feel the full impact of the tightening of credit and the rising mortgage rates.

Capital Economics chief economist Paul Dales, for instance, believes that house prices are pegged to fall across Australia by 12% over the next four years.

This will exacerbate the already decreasing housing values in cities like Melbourne and Syndey, where prices are expected to decline by 15% in 2020.

AMP Capital chief economist Shane Oliver said the home price drop is also to blame for the retail spending moderation in July.

“Ongoing home price falls in Sydney and Melbourne will depress consumer spending as the wealth effect is now going in reverse," Oliver said.

Over the past month, home prices in Australia were 2.2% down from the peak in September 2017, with five out of eight capital cities recording declines. For industry watchers, property prices will continue falling for the next few years.

For Dales, the housing market will witness a 12% drop in home prices spread over the next four years. He noted, however, that this is unlikely to result in any problem.

“With the full effects of tighter credit conditions and rising mortgage rates yet to be felt, the current housing downturn will probably end up being the longest and deepest in Australia’s modern history," Dales said.

Oliver, on the other hand, argued that the recent declines should be viewed with respect to the strong capital gains recorded over the previous years.

"Tighter bank lending standards, poor affordability, rising unit supply, falling price growth expectations and FOMO (fear of missing out) risking turning into FONGO (fear of not getting out) for investors, are pushing prices down in cities which have seen strong gains since 2012," he said.

He furthered, "A crash landing remains unlikely in the absence of much higher interest rates or unemployment, but it’s a risk given the difficulty in gauging how severe the tightening in bank lending standards in the face of the royal commission will get and how investors will respond as their capital growth expectations collapse at a time when net rental yields are around 1-2%.”