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.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
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."
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): Credit Union Australia, 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.
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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