The AFR held its webcast on the property market, where the consensus seemed to be that Australian property prices would fall by around 10%:
“There are still risks including a second wave of coronavirus and there’s still going to be a lot of uncertainty,” [EY Oceania chief economist Jo Masters said].
“I think a 10 per cent fall in house prices is where the consensus is sitting, in my view.”
Last year the market needed about 180,000 new dwellings, next year it would be about 90,000. But there were 188,000 dwellings at the end of 2019, where construction had started but not been completed, Ms Masters said.
“That means we have dwellings in the pipeline coming through that’s double the underlying demand that we’re going to need.
“It’s pretty challenging conditions for the market having supply exceeding demand. Overall, I think it’s going to be a challenging couple of years”…
“I think we’re going to see further price weakness, particularly in Sydney and Melbourne. I do think that we will see them both down by the end of the year” [Domain senior analyst Nicola Powell said]…
“Sydney and Melbourne were being hurt by the loss of migration due to the border closure, that’s why they’re hit the hardest in many respects” [SQM Research managing director Louis Christopher said]…
A 10% property correction, driven by Sydney and Melbourne, looks realistic. The headwinds are obvious:
- High unemployment and falling incomes, which could worsen once stimulus measures are unwound and/or if there are further shutdowns;
- Collapsing immigration, which will mostly impact Sydney and Melbourne;
- Rising rental vacancies and falling rents;
- Tightening mortgage availability (despite low rates), as banks become increasingly concerned about borrowers’ ability to repay; and
- Expiry of mortgage repayment holidays (coinciding with unwinding emergency income support) in late September.
How bad the downturn gets will depend largely on how successfully the government and banks withdraw emergency support.
Gradually unwinding support would obviously create less downside risks than opting for a hard stop,