House prices to drop up to 15% in Sydney and Melbourne, banks say

author-avatar By on May 08, 2020
House prices to drop up to 15% in Sydney and Melbourne, banks say

Photo by Rosie Steggles on Unsplash

Australia's strongest housing markets are set to be hardest hit by the coronavirus pandemic, with NAB and ANZ predicting double-digit price falls.

NAB has forecast a 15% drop in house prices for Sydney and Melbourne over the next 12 to 18 months, while ANZ is predicting a 13% drop.

Both banks have estimated an average 10% drop in house prices nationally. 

House prices in Sydney, Melbourne and Hobart could suffer the worst price drop of 13% according to ANZ, largely due to a freeze in population growth from border closures.

Darwin and Brisbane house prices are estimated to fall by 7%, Adelaide by 6%, Canberra by 5%, and Perth by just 2%.

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
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.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 27, 2021. View disclaimer.

ANZ senior economist Felicity Emmett said house prices will bottom out by June next year.

“We anticipate prices will bottom out in mid-2021 as affordability improves, but the recovery is likely to be relatively gradual given that unemployment is expected to remain above 7% until 2022,” she said.

While mortgage deferrals will help prevent forced sales, the bank says a "collapse" in demand in the face of an uncertain economic outlook will push prices lower over the next year.

The bank said weakened household income will be the biggest driver of weakness and expects unemployment to rise to just below 10%.

“But this does not capture the scale of the loss of income, with households across the income and industry spectrum experiencing cuts to hours and wages," ANZ said. 

"Already, nearly a third of Australian households have reported a deterioration in finances due to the pandemic.

“This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home.”

"Significant" risks to property as confidence shaken

While sentiment among property professionals remained strong in the first quarter of the year, the NAB property survey found confidence was beginning to waver, reflecting early fears of the coronavirus impact on housing markets.

NAB's Residential Property Index showed sentiment in the residential property market remained strong in all states and territories in the March quarter, rising four points to a survey high of +38.

However, the survey was conducted before more restrictive social isolation measures, and bans on open homes and on-site auctions and is unlikely to reflect sharp falls in confidence since then. 

"Consequently, we expect sentiment and confidence to be much lower in the June survey," NAB said.

Even so, the bank found that sentiment was already beginning to weaken, with many property professionals revising down their forecasts for national house price growth to 1.5% over the next 12 months, after predicting a 2.2% rise in the previous survey.

"Downside risks to the market are significant and property professionals have revised down their expectations for price growth in all states, bar Western Australia," NAB chief economist Alan Oster said.

NAB expects high unemployment figures to drive house prices down to between 10-15% across the capital cities over the next 12 months.

"We see a sharp rise in unemployment to 11.7% by mid-year and partial recovery to 7.3% by end 2021," Mr Oster said

"While interest rates are very low and will act to support prices, rising unemployment, slower wage growth and weak confidence will weigh on prices."


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
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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