NAB: Coronavirus impact could see house prices drop 30%

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on April 28, 2020
NAB: Coronavirus impact could see house prices drop 30%

Photo by Thomas Bassett on Unsplash

A worst-case COVID-19 scenario could see Australian house prices decline by a cumulative 30%, NAB research shows.

NAB has outlined two scenarios that would affect the amount of defaults across its loan products. 

A "severe downside scenario", assuming a 'U-shaped' recovery in the economy, would see house prices fall 20.9% in 2020, 11.8% in 2021 and marginally rebound by 2.5% in 2022. 

The scenario also assumed a lengthy recession, with unemployment to steadily rise to 7.4% in 2020, 10% in 2021 and 10.4% in 2022, and growth in the economy to remain negative until 2022. 

In contrast, the oft quoted 'V-shaped" recovery would see house prices fall by 10% in 2020 and rebound by 2.6% in 2021, with unemployment sharply rising to 11.6% this year and falling to 7.3% in 2021. 

NAB chief risk officer Shaun Dooley said which scenario came to fruition would come down to the global economical impact of the coronavirus. 

“The severe downside [scenario] assumes that you get a very significant reduction in global GDP, therefore the demand for Australian goods and services offshore and exports would fall, that would clearly drive unemployment up," Mr Dooley said.

"You would have the potential impact on house prices as a result of that, as the economy really struggles." 

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%
FixedMore details
NO UPFRONT OR ONGOING FEES

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

NO UPFRONT OR ONGOING FEES
FixedMore details
  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
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
ZERO APPLICATION FEESFEE FREE OFFSET

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

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

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

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

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. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of January 28, 2022. View disclaimer.

NAB CEO Ross McEwan added he couldn't say for sure which outcome was more likely but had confidence the bank was prepared for either. 

"A bank such as ours needs to be ready for anything thrown at it, and I think that’s what we’ve tried to do today,” Mr McEwan said. 

NAB has offered several support measures to help customers suffering financial hardship due to COVID-19, including approving 70,000 home loan deferrals, and cutting credit card rates and waiving late fees.

No doubt due to plummeting profit margins, it also cut its 'Reward Saver' and ''iSaver' savings account interest rates by 25 basis points, taking the rates down to 1.0% p.a and 1.05% p.a respectively. 

NAB's worst case forecast echoes that of SQM Research, which said a 30% decline in dwelling prices by the end of 2020 is entirely possible, with overvalued cities like Sydney and Melbourne to be the worst hit. 

Meanwhile, the Reserve Bank Governor Philip Lowe last week said the 'V-shaped' recovery so many desperately crave is unlikely.

"Rather, the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come," Dr Lowe said.

Property market sees sharp decline in volume of sales 

In response to the COVID-19 pandemic, researchers in the City Analytics Lab at the City Futures Research Centre at UNSW Built Environment have created a COVID-19 Property Market Dashboard for Australia.

As of 22 April, the dashboard reported the total volume of sales across Australia was down $237 million compared to the same time last year. 

Total sales dropped at least 30% in all capital cities since cases of the virus started increasing in March. 

Adelaide saw the largest proportional loss compared with last year, down a massive 83%, while in the past eight weeks Sydney total sales dropped 79% (-$454 million) and Melbourne's dropped 85% (-$584 million).

Brisbane was the only market showing improvement in sales value in April.

Undoubtedly due to the Government's ban on open houses and auctions, auction clearance rates have dropped in all major cities across Eastern Australia except Canberra. 

Chair of Urban Science and Director of the City Analytics Lab Professor Chris Petit said the dashboard provides a current snapshot, updated daily, of how the property market was performing before and during COVID-19. 

“It is hoped the insights obtained through the dashboard can assist Australians better understand, monitor and make more informed decisions in relation to property as the COVID-19 pandemic continues to unfold,” Mr Petit said. 

Chief Executive Officer of partner organisation FrontierSI Graeme Kernich said the dashboard would also help with government and business development.

“It will assist in making data-driven decisions, such as being able to explore rezoning options, determining the economic benefits of a development proposal, or even the location of important infrastructure, like new metro or light rail stations,” Mr Kernich said. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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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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