A prolonged shutdown due to the coronavirus crisis could drive a sharper housing correction with falls of 10 per cent projected over the next six months.
According to the Commonwealth Bank of Australia's stockbroking and financial advice arm, CommSec, the plunge in economic activity and unemployment due to social distancing measures will begin to trickle through to property prices.
The forecast back-peddles on the advisors 6.1 per cent price growth in housing prices it projected for 2020 late last year.
With foreign investment and international migration “likely to drop close to zero” during the enforced border shutdown, the volume of activity across the property market is anticipated to shrink massively.
CommSec analysts said a price fall in the order of 10 per cent or 20 per cent on annualised basis could be expected.
“The usual underlying demand pulse from net overseas migration has evaporated because the border is shut.
“New lending is expected to contract, buyer expectations have adjusted downwards from exuberance to pessimism, rents are likely to fall, auction clearance rates are expected to remain weak and turnover will be lower than usual.
“The net result means that price declines are inevitable.”
Up until now, strong population growth has been a key factor in anchoring vacancy rates in most capital cities despite the boom in apartment construction across Australia.
Melbourne had been growing at a rate of 2 per cent per annum with Sydney close at 1.7 per cent.
Sydney and Melbourne housing markets are now the most exposed due to sizeable share of international migration and their low exposure to the more insulated sectors like agriculture and mining.
Melbourne's housing market is now forecast to decline by 11 per cent, while Sydney and Canberra are set to fall by 10 per cent each over the next six months while Brisbane, Adelaide and Hobart markets are expected to drop by 8 per cent each.
Up until now, property prices have remained immune from the direct economic fallout, increasing across most capital cities over March, albeit with more subdued growth than in recent months.
House prices lifted 0.7 per cent nationally, with all capital cities bar Hobart reporting gains, according to property researcher Corelogic’s monthly house price data.
Nevertheless, economists pointed to the rapid deceleration in the rate of growth over the second half of the month.
Commbank also said it expected the unemployment rate to peak at 8 per cent which comes off the back of the latest treasury figures which forecast the unemployment rate to hit double digits for the first time in 30 years.
Australia’s unemployment rate remained unchanged at 5.2 per cent for March, according to Australian Bureau of Statistics data, but economists have said the effects of the coronavirus on job losses would start to be seen in April.
Aggressive monetary policy easing has however resulted in record low variable and fixed mortgage rates, which have continued to support dwelling prices, at least in the near term.
“In a best case scenario government restrictions on economic activity could start to be lifted by the end of May,” CommSec analysts said.
“The fall in property prices would be significantly smaller than our central scenario, particularly given the extraordinary low borrowing rates currently on offer.”
Last week, UBS similarly revised its forecasts to a decline of at least 10 per cent in house prices over the coming year.