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.
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.
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.
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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