Sydney, Melbourne and Hobart to be hardest hit by downturn, house prices to fall up to 15 per cent: banks

Australia’s strongest performing capital cities are likely to be hardest hit by the second housing market downturn in two years, with banks predicting double-digit price falls due to the COVID-19 pandemic.

ANZ has forecast a 13 per cent drop in prices in the two major markets of Melbourne and Sydney, as well as a 13 per cent drop in Hobart.

NAB is predicting a 15 per cent drop across Sydney and Melbourne over the next 12 to 18 months, while both major banks are predicting an average 10 per cent fall across all capital cities.

The price downturn would be similar to that suffered throughout 2018 and the first half of 2019, ANZ senior economist Felicity Emmett said. 

“It’s essentially wiping out all the gains made since May 2019,” Ms Emmett said. “Melbourne, like Sydney, will be more affected by a drop-off in population growth and no new overseas migrants.”

Ms Emmett said while Sydney and Melbourne would be hard hit, so too would Hobart because of its previously rising prices.

ANZ was anticipating prices to bottom out by mid-2021, with a slow recovery to follow.

NAB chief economist Alan Oster said the recovery would be slower, predicting significant falls over the next 12 to 18 months.

“While interest rates are very low and will act to support prices, rising unemployment, slower wage growth and weak confidence will weigh on prices,” Mr Oster said.

Banks including ANZ and NAB have allowed deferral of mortgage payments for up to six months during the pandemic.

ANZ has so far received 105,000 requests for assistance on $36 billion worth of home loans – 14 per cent of its home loan portfolio.

NAB has approved more than 70,000 repayment pauses since March 20, on $26.5 billion in loan balances.

The latest predictions were more conservative than those of other property experts.

In April, SQM Research founder Louis Christopher predicted falls of 30 per cent.

AMP Capital senior economist Shane Oliver said a worst-case scenario would be 20 per cent falls in Sydney and Melbourne.

Domain economist Trent Wiltshire said it was hard to predict exactly would happen to property prices given the unknown future of the coronavirus pandemic and the measures to stop its spread.

“Trying to forecast is almost impossible given we don’t know how long the [economic] shutdown is going to be,” he said.

There was also a risk of even stricter economic closures if there was a resurgence of the spread of the virus, Mr Wiltshire said.

While the banks had offered relief for those with a home loan, Mr Wiltshire said they may need to consider extending mortgage deferrals if strict social distancing measures were to continue.

That may defer any forced sales of homes to later in the year, when people face being unable to pay their mortgage due to job losses or a cut to their hours.

“The big test will be at the end of the mortgage deferral period,” Mr Wiltshire said.