In the autumn of a pandemic year, when a recession has pressed on households and businesses alike, Westpac's economists have offered a sober forecast for Australia's homes: prices will keep sinking until April 2021, and then slowly climb back. The bank now expects a smaller fall than it first feared, because the big cities held together better than anyone had hoped. Yet the future rests on a fragile hinge, the moment when temporary relief ends for hundreds of thousands of borrowers, and whether they can keep their footing when the support is withdrawn.
Westpac Forecasts Home Prices Fall Until April 2021, Then a 15% Rebound as Loan Deferrals End
Roughly 630,000 housing and small business loan customers have repayments paused and may struggle to meet payments when relief ends.
Nearly 630,000 loans remain on pause, worth around $240 billion
Mark
Westpac says prices fall until April 2021, then rise 15 per cent. Why does the April date matter?
Mimi
It's when the bank expects the bottom, and it ties to the loan deferrals ending. The forecast hinges on what happens to borrowers when relief stops.
Mark
How big is that group?
Mimi
Nearly 630,000 housing and small business loan customers still have repayments paused, on loans worth around $240 billion.
Luke
Worth saying that's an estimate, and the article doesn't say how many of them will actually struggle to pay. Distressed sales are a risk Evans describes, not something that has happened.
Mark
The forecast also got milder, didn't it?
Mimi
Yes. Westpac first predicted a 10 per cent national fall and now expects 5 per cent, because capital city markets proved more resilient.
Mark
And Fitch adds the immigration angle.
Mimi
It expects 5 to 10 per cent falls over 12 to 18 months, with population growth of 0.7 per cent in 2020, down from 1.4 per cent in 2019.
Luke
Those are two institutions' projections, and they don't match each other. Fitch is more pessimistic on timing and size, and neither number is an outcome yet.
Mark
Which city stands out?
Mimi
Melbourne, with a forecast 12 per cent drop between April and June 2021. Adelaide is the one expected to rise, by 2 per cent.
Luke
And the 15 per cent rebound is the least certain piece. The article gives the figure but not the reasoning behind it.
Il Polso
- Westpac now forecasts a national dwelling price fall of about 5 per cent, half of its earlier 10 per cent estimate, and a floor reached by April 2021.
- Repayment holidays covering roughly 630,000 borrowers, worth about $240 billion, are set to expire, threatening a wave of urgent and distressed sales.
- Falling migration, down to 0.7 per cent population growth, is cutting demand for homes, with Fitch warning of further 5 to 10 per cent declines.
- Melbourne faces a projected 12 per cent drop between April and June 2021, while Adelaide is expected to rise, exposing a sharply divided market.
- Recovery is expected to follow with a rebound of about 15 per cent over two years, but only if distressed sales stay contained.
In the autumn of a pandemic year, when a recession has pressed on households and businesses alike, Westpac's economists have offered a sober forecast for Australia's homes: prices will keep sinking until April 2021, and then slowly climb back. The bank now expects a smaller fall than it first feared, because the big cities held together better than anyone had hoped. Yet the future rests on a fragile hinge, the moment when temporary relief ends for hundreds of thousands of borrowers, and whether they can keep their footing when the support is withdrawn.
Westpac's economists have set a marker for the Australian housing market: April 2021. Until then, they expect dwelling prices to keep falling under the strain of the coronavirus recession. After that, they forecast a rebound of around 15 per cent over the following two years.
The bank's outlook has softened since its first estimate. Chief economist Bill Evans said capital city markets had proved more resilient than expected, so the projected national fall is now about 5 per cent rather than 10. But he warned that the real uncertainty lies ahead, when government and bank support is removed and loan deferrals expire. Nearly 630,000 housing and small business borrowers, with loans worth roughly $240 billion, still have repayments paused, and some may not be able to resume them. Such pressure could force distressed sales that drive prices lower.
Population adds another weight. Fitch Ratings expects house prices to fall 5 to 10 per cent over the next year and a half as net immigration slumps to levels not seen in four decades. Young adults may also delay moving out, given job market fears. Westpac's city forecasts diverge sharply: Melbourne may drop 12 per cent between April and June next year, Sydney 5 per cent, while Adelaide is tipped to gain. The coming months will show whether the cities' fates split as predicted, and how many paused loans turn into forced sales.
Westpac's economists have put a date on the bottom of the Australian housing market: April 2021. Until then, the bank expects dwelling prices to keep sliding under the weight of the coronavirus recession. After that, it forecasts a rebound of about 15 per cent over the following two years.
The outlook is less grim than the one the bank first offered. Chief economist Bill Evans said capital city markets had held up better than expected through the pandemic. Westpac now expects the national average dwelling price to fall by 5 per cent, half the 10 per cent decline it originally predicted.
The risk, in Evans's telling, lies in what happens when government and bank support is withdrawn. Many mortgage and business loan holders have been given repayment holidays, and some may be unable to resume payments when those deferrals end. That could produce what he called "urgent and distressed" sales. In an economic update, he said the great uncertainty about how far prices will weaken is the effect of policy supports being removed and temporary loan deferrals rolling off. Distressed sales, he said, would act as a catalyst for weaker prices.
The scale of the deferrals is considerable. Estimates point to nearly 630,000 housing and small business loan customers who still have repayments on pause, with the loans involved valued at around $240 billion.
A second pressure comes from population. Fitch Ratings expects Australian house prices to fall by 5 to 10 per cent over the next 12 to 18 months as net immigration weakens sharply. The agency estimates population growth will reach just 0.7 per cent in 2020, a level not seen in 40 years, down from 1.4 per cent in 2019. It said the drop in immigration between FY19 and FY21 would imply demand for around 76,000 fewer dwellings than would otherwise have been the case.
Fitch also expects fewer adult children to move into homes of their own, given the exceptional uncertainty in the jobs market during the recession.
Westpac's forecasts differ sharply by city. Melbourne prices are expected to fall by 12 per cent between April and June next year, while Sydney is expected to decline by 5 per cent. Brisbane is tipped to fall by at least 2 per cent, and Perth to stay flat. Adelaide is the exception, with dwelling prices expected to rise by 2 per cent over the same period.
The thing to watch is the spring of 2021: whether Melbourne's projected 12 per cent drop arrives between April and June, and how many of the 630,000 paused loans turn into forced sales once the deferrals end.
Citazioni salienti
The great uncertainty about the extent of price weakness is the impact on the market as a range of policy supports are withdrawn and temporary loan deferrals start to roll off.— Bill Evans, Westpac chief economist
The reduction in immigration between FY19 and FY21 would imply demand for around 76,000 fewer dwellings than would otherwise have been the case.— Fitch Ratings
Vuoi la storia completa?
Leggi l'originale su NEWS.com.au ↗
Politics & Governance