Commbank: Coronavirus fallout could see house prices drop 30%

author-avatar By on May 13, 2020
Commbank: Coronavirus fallout could see house prices drop 30%

Photo by Kate Trifo on Unsplash

Australia's biggest bank said the economic fallout from COVID-19 could see house prices drop up to 32% in a worst case scenario.

Commonwealth Bank's (CBA) worst-case scenario of a 32% drop in house prices assumed a prolonged downturn as a result of the pandemic, with unemployment to hit 9% this year before falling to 6.5% by 2022. 

This scenario also assumed a two year recession, with growth shrinking by 7.1% this year and 0.8% next year, before slightly rebounding by 2.3% in 2022.

A shortened downturn, or V-shaped recovery, would see house prices drop by 'just' 11%, with the unemployment rate marginally better off at the end of the year at 8.25%.

The sharp rebound would see a fall of 6% in growth, rising by the same margin in 2021 and rising again by 3% in 2022. 

However, even in this improved scenario, unemployment would still only fall to 6.5% in 2022.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 18, 2021. View disclaimer.

CBA released the scenarios as part of its March quarter trading update and said it had set aside $1.5 billion to cover potential losses from the COVID-19 recession. 

It said key drivers of the fall in house prices were unemployment, underemployment and changes to income, and uncertainty remained regarding the duration and severity of the COVID-19 impact.

CBA Chief Executive Officer Matt Comyn said in a statement the bank was doing everything it could to support Australia through these challenging times.

"The Bank is well funded, with significant levels of excess liquidity and strong capital," Mr Comyn said.

"The strength of the Bank means we are well placed to support our customers and the broader Australian economy. 

"Today’s announcement of an additional credit provision of $1.5bn for the potential longer term impacts of COVID-19 further reinforces our already strong provisioning and balance sheet settings." 

NAB also said in April house prices could drop by a cumulative 30%, potentially falling by 20.9% in 2020, 11.8% in 2021 before rebounding by 2.5% in 2022. 

ANZ was more optimistic, and said house prices would drop by just 10% nationally, but Sydney and Melbourne would be worse hit, dropping 13%. 

More than 200,000 borrowers ask for loan repayment deferrals 

CBA said it had repayment deferral requests on approximately 144,000 home loans with balances totalling $50 billion, 71,000 business loans with balances totalling over $15 billion, and 25,000 personal loans. 

The bank saw over 1 million calls and online requests for help, with calls to its hardship line increasing by 800% from the start of the pandemic. 

CBA said its controversial move to reduce home loan repayments to the minimum had released up to $3.6 billion to Australian households.

The move was criticised by consumer groups, as the reduction would increase the length of the loan and rack up tens of thousands in additional interest charges. 

CBA also said it had approved more than 6,500 loan applications under the Government's small and medium-sized enterprise Guarantee Scheme, totalling over $500 million of new lending. 

The largest number of applications came from retail trade (18%), followed closely by construction (16%), accomodation, cafes and restaurants (14%), and business services (12%). 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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