There have been a lot of predictions about house prices. Agents say they are going up. Buyers wish they were going down. But the Commonwealth Bank is the nation’s biggest home loan lender. So when it speaks, you’d better listen.
Why? Because the bank has more to lose than most in a downturn. The value of your house is the bank’s collateral.
This week, it revealed it had received 144,000 requests for home loan deferrals from mortgage holders in distress.
The CBA is forecasting a nasty downturn. It has set aside $1.5 billion to cover potential losses from the COVID-19 recession. It’s base case has a 6 per cent economic downturn this year, followed by a rapid bounce-back of 6 per cent next year and further 3 per cent growth in 2022.
Unemployment would average 8.25 per cent this year before easing back to 6.5 per cent by 2022.
It was 6.2% yesterday, after 600,000 lost work in April. In this scenario, home prices will fall by 11 per cent over three years.
That’s the good news. Now the bad.
The bank also has a “prolonged downturn” scenario, where GDP growth falls 7.1 per cent this year, followed by a further 0.8 per cent decline next year, before a modest 2.3 per cent recovery in 2022.
The jobless numbers will average 9 per cent this year and 8.5 per cent next year before easing back to 6.5 per cent by 2022.
And house prices would fall by almost a third from their March 2020 peak over the next three years. Yes, a third. That’s six figures in every state.
Unsold homes are starting to pile up – and investors are trying to get rid of untenanted properties, adding to a stockpile.
CBA’s worst-case scenario would bring Sydney’s median house price down from $1,026,000, on the latest CoreLogic data, to $698,000. Sydney’s median house price hasn’t been below $700,000 since 2013.
Even Premier Gladys Berejiklian said NSW will be a buyers market for some time to come.
CBA’s chief executive Matt Comyn says the bank has to plan for the worst. But he is optimistic that Australia can avoid the worst of the global health and economic crisis.
The Combank is joined by Westpac, predicting a 20 per cent housing downturn. And a survey of 25 economists by financial comparison website Finder predicted sharp drops in every state.
What’s driving the gloomy predictions? Predictions of unemployment at 10% and high household debt.
The result: most experts are advising not to buy in the current market, but to wait.