Sydney and Melbourne property prices could fall up to 30% due to coronavirus

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on April 08, 2020
Sydney and Melbourne property prices could fall up to 30% due to coronavirus

Photo by Road Trip with Raj on Unsplash

New research has painted a grim picture for the Australian property market's future should the coronavirus pandemic worsen.

Data house SQM Research said a 30% decline in dwelling prices by the end of 2020 is entirely possible, with overvalued cities like Sydney and Melbourne the worst hit. 

SQM Managing Director Louis Christopher said the best case scenarios for property owners and investors is that there are zero new COVID-19 cases by the end of April and as a result, measures such as bans on auctions and open houses are lifted. 

"If we are able to get back to close to normal business by end of May (I certainly don’t think all restrictions will be lifted by that time), then I think confidence in the housing market is going to return," Mr Christopher said.

"Assisted with all the stimulus announced and the economic damage relatively limited, it would mean a fall in housing prices recorded for the June quarter but a bounce back in the September and December quarters."

But a worst-case scenario, where restrictions are lifted and a second wave of the virus occurs, would see a deep 30% correction in house prices, and restrictions stay in place for longer than six months, with more added. 

Previous research by investment bank UBS found a "worst-case" scenario could see house prices fall by 20%

"With the surging and sustained unemployment rate, the banks could start to get nervous on mortgages," Mr Christopher said.

"Potentially, after the six-month hiatus, banks may be backed into a corner where they are forced to repossession on defaulted housing loans."

Mr Christopher added that as house prices drop, many property owners will be panicked and look to see sell and recoup their losses. 

"They [property owners] will see the falls in dwelling prices over the course of the June quarter. And they will be very protective of what is left of their net wealth.

"The buy side of the property equation would be hit very hard as it is being hit hard now. But far worse than what we had in 2018 or indeed 2008 [The Global Financial Crisis]."

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 24, 2022. View disclaimer.

According to SQM Research, a second wave of infections would also cripple small business, as well as the property market, with stimulus measures not enough to keep the sector afloat. 

"When there is little to zero revenues coming in, month after month, PAYG relief is not enough," Mr Christpher said.

"Being subsidised to cover employee wages at $1,500 a fortnight is not enough. Neither is a $10,000 cash grant for most.

"And forget about asking small business to go into debt. Most of them, particularly in retail, hospitality and tourism, will refuse to do so.

"And so job creation would occur at a far slower rate when a recovery would eventually return."

Rental market in serious trouble 

SQM Research found rental vacancy rates could rise from 2% to exceed 3%, a record high from when the data company first started the index in 2005. 

As a result, rents will fall, and this weakness in the rental market would put off many would-be property investors, creating further issues for the property market. 

A rise in vacancies would come from a stalling in underlying demand for accommodation, through near-zero migration combined with a reduction in existing tenancy demand, due to job losses, plus a sharp rise in empty 'Airbnb' accommodation.

"I can’t tell you how many property owners are going to switch back to longer-term leasing but there will be a number, especially if this plays out for longer," Mr Christopher said.

"This is not a scenario here. This is our view. Our view is that rental vacancy rates are going to rise sharply over the short term." 


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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