Stimulus Not Enough to Offset House Price Falls: UBS


The increasingly bearish forecasts for house prices are coming in thick and fast, with UBS analysts the latest to revise their outlook—downward—as property sector confidence falls into negative territory.

The Covid-19 virus is set to wipe a record $14 trillion from the global economy, sending the world into the worst recession since the great depression of the 1930s and Australia into its first recession in nearly 30 years.

Increasing mobility restrictions combined with a significant and prolonged fall in migration will weigh on house price growth over the 2020 calendar year, UBS analyst George Tharenou said.

“This is coupled with a severe recession lifting unemployment, and poor sentiment amid expectations of price falls.”

The International Monetary Fund forecasts a nearly 7 per cent downturn for Australia’s economy, followed by a sharp, V-shaped, rebound in 2021 of 6.1 per cent.

And UBS reckons that the federal government’s current stimulus won’t be enough to offset the negative indicators.

“So far, there has not been material enough policy support directly aimed at housing to offset these growing negatives,” Tharenou said.

“We now expect dwelling commencements to collapse from 174,000 in 2019 to around 120,000 in 2020, including a dip below 100,000 in coming quarters, which would be the lowest level since at least 1960.”

UBS has now materially revised its forecasts in line with its “full-pandemic scenario” to a decline of at least 10 per cent in house prices over the coming year.

“Without an easing of mobility restrictions and [more] direct policy support, the price falls will likely be larger.”

The housing start predictions is another 20,000-odd drop on the UBS analysts’ prediction from March, when they also indicated that home sales were likely to more than halve in the short-term.

Housing prices and household debt


^ Ratio to household disposable income. Household disposable income is after tax, before the deduction of interest payments, and includes income of unincorporated enterprises. Sources: ABS; Corelogic; RBA.

The latest ANZ and Property Council survey shows sentiment dropping to the lowest level in nearly a decade—with 87 per cent of respondents expecting the pandemic to worsen over the next quarter.

The survey, released on Thursday, reveals two-thirds of respondents said the crisis had already impacted business, with 35 per cent reporting a “serious” impact.

Member of an International Monetary Fund external advisory group Kevin Rudd said that the IMF’s sharp V-shaped rebound prediction of 6.3 per cent next year was at the upper-end of forecasts.

“The quality of the recovery, which in my own judgement is not going to be V-shaped, but at best U-shaped and [possibly] W-shaped—with constant fluctuations in public health recovery and economic recovery,” the former PM said on Radio National breakfast on Wednesday.

“Our policy measures will need to constantly be adapted, [preventing] this crisis from metastasising into a financial crisis is a core challenge for all policy makers around the world at present.”

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