NAB economists expect Australia’s dwelling prices across the capital cities to fall by 10 per cent to 15 per cent over the next 12 to 18 months.

NAB chief economist Alan Oster said Australia’s dwelling prices could fall by around 10 per cent this year, with declines led by Sydney and Melbourne, and further falls posted in the first half of 2021, before “levelling off”.

Oster said he expected Sydney house prices to fall 2.9 per cent this year, followed by 2.6 per cent next year.

Melbourne house prices are forecast to fall 4.8 per cent this year, and 3.6 per cent in 2021. While Brisbane house prices are forecast to fall 3.7 per cent this year, followed by an 8.6 per cent drop in 2021.

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

NAB house price forecasts

^{Source: CoreLogic, NAB Economics}

NAB’s house price forecast comes as ANZ announced it expects a fall of a 10 per cent peak-to-trough fall for house prices, before a modest recovery in late 2021

The NAB hedonic forecast for units across the capital cities show larger price drops are expected, with a 10 per cent drop in Melbourne’s unit prices this year, followed by a 4 per cent drop in 2021.

Sydney units are expected to fall 8.8 per cent this year, and 4 per cent in 2021. While unit prices in Brisbane are tipped to fall 5.5 per cent this year, followed by 8.6 per cent next year.

“Also, while we do not see a fundamental over-supply in the market, with construction continuing to decline, a slowing in migration will see demand for housing soften somewhat.”

NAB unit price forecasts (%)

^{Source: CoreLogic, NAB Economics}

As a result of the Covid-19 related containment measures, NAB expects “a sharp deterioration” in the labour market, with unemployment to rise to 11.7 per cent by mid-year followed by a “partial recovery” to 7.3 per cent by the end of 2021.

The Reserve Bank of Australia announced on Friday it expects unemployment to reach 9 per cent by Christmas, up from the previous forecast of 5.1 per cent. The central bank expects unemployment to still be sitting around 8.5 per cent by June 2021.

Alongside house price declines, NAB expects dwelling construction to continue to fall.

“The pipeline of work yet to be done remains relatively elevated in New South Wales and Victoria, but this will be rapidly eroded with high rates of work done,” Oster said.

“Building approvals remain low and are expected to decline further, suggesting little replenishment of the pipeline of work.”

ANZ economists said they expect housing construction activity to decline 15 per cent through 2020-21, bringing the cumulative peak-to-trough decline to 25 per cent.