Australian house prices starting to fall – collapse likely averted but expect more weakness ahead – Livewire Markets

Our worst-case scenario for a 20% decline in prices and those of others seeing 30% plus falls are unlikely thanks to support measures and the earlier reopening of the economy. To get these worst-case scenarios would require a second wave of coronavirus cases & so a renewed shutdown or another down leg in the economy in response to a surge in bankruptcies.

However, further falls in prices are still likely, as true unemployment (to become clear after September) remains high for several years, government support measures and the bank payment holiday end after September, immigration falls and likely government measures boost housing construction. Our base case is for national average prices to fall around 5-10% into next year. Sydney & Melbourne are likely to see 10% falls as they are more exposed to immigration and have higher debt levels whereas Adelaide, Brisbane, Perth & Hobart are only likely to see small falls and Canberra prices are likely to be flat.

This may be seen as a reasonable outcome in terms of making housing more affordable but without posing a big threat to the economy (via a downwards spiral of falling prices and negative wealth effects on consumer spending) at the same time.

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Australian house prices starting to fall - collapse likely averted but expect more weakness ahead - Livewire Markets