Sydney house prices could tumble 15%, Melbourne 17% in 2021: HSBC

author-avatar By on May 22, 2020
Sydney house prices could tumble 15%, Melbourne 17% in 2021: HSBC

Photo by Cindy Tang on Unsplash

Sydney house prices could fall by 15% in 2021, while Melbourne prices could plummet by as much as 17% according to forecasts from HSBC.

Rising property prices before the COVID-19 pandemic hit are expected to offset much of the drop in prices expected in the second half of this year. 

According to analysis by HSBC, national house prices could end 6% higher by the end of 2020, with Sydney house prices potentially up by as much as 9% and Melbourne 7%. 

But next year, house prices could drop anywhere between 2% and 12% nationally.

The biggest declines are expected in our biggest housing markets, with Sydney house prices predicted to fall between 5% and 15% and Melbourne's by between 7% and 17%. 

The drop in house prices could be even higher if economic recovery is an 'L' or 'W' shape. 

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 18, 2021. View disclaimer.

HSBC chief economist Paul Bloxham said rising unemployment and a freeze in migration thanks to border lockdowns were likely to be big drivers of oversupply, driving house prices down. 

"Forecasting housing prices is difficult at the best of times, but at the moment it is particularly challenging," Mr Bloxham wrote. 

"Although interest rates are at record lows, which should support housing prices, at the same time, the COVID-19 economic shock, stalled migration and rising unemployment are set to weigh on housing demand.

"We expect larger declines in housing prices in Sydney and Melbourne than in Australia's other cities, given greater reliance in these cities on migration and foreign students, which have stalled as a result of border closures."

Many economists are forecasting a house price drop of anywhere between 10% and 20% nationally.

Earlier in the month, the likes of Commonwealth Bank and SQM Research predicted a 30% drop in a worst-case scenario.

There are already early signs of prices dropping, with combined capital city house values falling by a 0.20% over the 28 days to May 18 according to CoreLogic. 

"No sign of distressed selling"

Some vendors are already reducing their asking prices but a recent analysis of Domain listings has found there is "little evidence to suggest an increase in urgent or distressed selling across Australia’s capital cities".

According to the analysis, Sydney, Perth, Adelaide and Hobart had a marginal increase in the number of urgent sale listings from February to mid-May "when the full economic shutdown and social distancing restrictions would have been felt".

But Melbourne and Darwin saw no change, and Brisbane and Canberra saw a small decline in the number of urgent listings.

"This suggests home owners are not being forced to sell despite the economic turmoil and rising unemployment created by the current health crisis," Domain economist Nicola Powell said. 

Proportion of urgent sales:

Feb Mar Apr May mid-May Change: Feb to mid-May
Sydney 1.4% 1.2% 1.2% 1.4% 1.6% 0.2ppt
Melbourne 0.5% 0.5% 0.4% 0.5% 0.5%
Brisbane 3.0% 2.9% 2.8% 2.8% 2.8% -0.1ppt
Perth 2.3% 2.2% 2.2% 2.3% 2.4% 0.ppt
Adelaide 0.9% 0.7% 0.7% 1.0% 1.1% 0.2ppt
Canberra 0.7% 0.7% 0.6% 0.6% 0.6% -0.1ppt
Darwin 2.8% 2.7% 2.7% 2.8% 2.8%
Hobart 0.7% 0.9% 0.8% 0.8% 1.0% 0.3ppt

Source: Domain

Ms Powell said the aftermath of the economic upheaval caused by the pandemic could result in an increase in the number of distressed sales, but financial stimulus measures such as JobKeeper and JobSeeker will minimise the number of urgent sales, which will support house prices. 

"If the policies were not in place, the immediate risk to prices would be far greater," Ms Powell said. 

"The longer-term impact could be different, and an uptick in distressed selling is possible once the policies cease. If the JobKeeper subsidy performs as intended and retains jobs, together with economic activity bouncing back, any dramatic increase in distressed selling is unlikely.

"However, those who have lost their business, remain unemployed or underemployed will be at greater risk of defaulting on their mortgage."


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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