House prices are likely to fall by about 10 per cent this year, despite healthy auction rates, as oversupply and downward pressure on rental yields hold back a recovery, Commonwealth Bank boss Matt Comyn said.
Speaking in response to the bank’s earnings on Wednesday, which saw the delivery of a full-year cash profit of $7.3 billion, Comyn said house prices had drifted only “slightly lower” than the bank’s earlier prediction.
“We have seen a sharp economic contraction during the course of the year as a result of the pandemic,” Comyn said.
“Not quite as bad as we’d first feared, but certainly the pace of recovery does look like it will be longer.
“I think a [house price] reduction in the order of 10 to 12 per cent is still a reasonable assumption.
“We do have an expectation that in some areas, particularly in inner-city areas, there has been downward pressure on rental yields, so we think that’s going to weigh on house prices.”
According to recent Corelogic data, house prices have fallen for three consecutive months, dropping 1.6 per cent over the quarter, but remain up 7.1 per cent for the year.
Over July, Melbourne dwelling values dropped 1.2 per cent and Sydney 0.9 per cent, with Brisbane experiencing a modest loss of 0.4 per cent.
Canberra remains an outlier, where prices have been holding firm, indicating buyers—insulated by the high proportion of government workers—are untroubled by the economic uncertainty being felt more acutely elsewhere.
Regional property markets, which tend to be more affordable and more insulated from economic shocks, have also significantly outperformed city markets on average during the past year.
Auction markets showed a temporary recovery through June and early July, however, prices have continued to trend lower as vendors revised their price expectations due to buyers pulling back amid job worries.
Rental stock has surged over the past three months as short-term rentals switched to longer-term leases and some vendors opted to list their properties for rent.
This comes at a time of weak demand due to the overseas student market drying up, and some renters being forced to move back to their family home due to income loss.
Despite the economic setback created by Melbourne’s second lockdown, CBA said the number of customers who had deferred home and business loans for six months as a result of the pandemic had fallen over July.
Comyn noted that about 12 per cent of the deferred home loans were in higher-risk categories, expecting most customers to resume their repayments as the lender makes contact with borrowers in the months ahead.
CBA has also published modelling that shows unemployment rising to 9 per cent by the end of this year, before falling to 7.5 per cent by the end of 2021.
“We would say overall, and looking at the numbers in the last few months, the housing market has been more robust than perhaps we would have anticipated from March,” Comyn said.
“There’s going to need to be some policies and investments at both the federal and state level to support greater jobs creation so we can bring that unemployment rate down.”
In May, ANZ said it expected dwelling prices to fall 10 per cent from the peak to trough across the capital cities.
NAB noted the sharp rise in unemployment as a driver for property prices falls, anticipating losses between 10 to 15 per cent over the next 12 to 18 months.