Banking inquiry hears Australian house prices to fall by at least 10 per cent
Bank bosses have warned homeowners should brace for a significant fall to their home values and cautioned one sector of housing will be hit the hardest.
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House prices across the country are set to plummet by at least 10 per cent in the next year, two of the nation’s top bank bosses have warned.
The Commonwealth Bank’s chief Matt Comyn and ANZ boss Shayne Elliott warned on Friday homeowners should brace themselves for a significant fall to their home values.
The pair were quizzed before a parliamentary committee to discuss their response to the COVID-19 pandemic, and revealed a grim outlook for homeowners relying on capital growth.
“Our base case scenario would see house prices falling somewhere in the order of 10 to 12 per cent,” Mr Comyn said.
“Clearly acknowledging there’s a lot of different parts of the market, broadly regional areas are performing better than metropolitan areas.”
Mr Comyn expected a harder hit to apartments, particularly those in inner-city areas, versus houses.
Despite this, latest CoreLogic figures showed house prices nationally delivered positive growth in the past 12 months.
In Sydney they climbed by 11 per cent, Melbourne 6 per cent, Brisbane 4.3 per cent, Adelaide 6.7 per cent, Perth 2.1 per cent, Hobart 11.4 per cent, Darwin 8.4 per cent and Canberra 7.9 per cent.
The latest median values in each city included Sydney at $986,000, Melbourne $782,000, Brisbane $558,000, Adelaide $481,000, Perth $462,000, Hobart $512,000, Darwin $476,000 and Canberra $716,000.
Mr Comyn said despite the predicted falls the housing market had been “particularly more robust” than predicted back in May.
Back then CBA forecasted that house prices could fall by up to 32 per cent by the end of 2022.
During the pandemic CBA customers have deferred more than 250,000 loans totalling $60 billion.
ANZ has about 84,000 customers who have taken out mortgage deferrals, of these about 70 per cent are owner occupier borrowers.
ANZ’s Mr Elliott said they too expected a fall in house prices of around 10 to 15 per cent this financial year.
“What we expect is there will be a reduction in house prices … but Australia’s not one market,” he said.
“There’s a danger at looking at averages, our number is about 10 per cent from peak to trough.”
Hundreds of thousands of customers have deferred loans including mortgages and personal loans during the pandemic and their repayment holidays are due to end in September and October.
The hearing also heard credit card customers at the two banks had collectively wiped off $4 billion in credit card debt during the pandemic.
Mr Elliott said during the pandemic their credit card customers had smashed down their card debt from $7.5 billion to $5.5 billion.
“We have seen quite a significant increase in people paying down credit card debt which is absolutely the right thing to do to pay down your most expensive debt,” he said.
“That’s because people are not going out and racking up more debt, they are paying it down.
“It’s a massive shift and to give you a sense of history that $7.5 billion hadn’t moved much over the last two or three years.”
Latest Reserve Bank of Australia figures data showed since March through until June credit card debt accruing interest dropped by 16 per cent to $22.79 billion, the lowest total since October 2005.
The early access to superannuation scheme during COVID-19 pandemic has also been popular for Australians – to date $34.5 billion has been withdrawn by 2.8 million individuals.
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Mr Elliott said for those dipping into their super early it would not impact their ability to get a loan.
“It’s not something we take into account,” he said.
“If you apply for a loan to us it’s now always evident to us, if you have money in your account exactly where it came from.
“I’m not aware we interrogate people.”
Under the scheme Australians who have taken a financial hit during the pandemic were able to access $10,000 last financial year and another $10,000 up until December 31 this year.
Withdrawals are tax free.
ANZ’s group executive Australia retail and commercial banking Mark Hand said when assessing a loan application they “seek to establish a savings history”.
“For a deposit to the equivalent of five per cent for the purchase of the property they need to have demonstrated a savings history to save that five per cent,” he said.
“If they top that up with a gift from a parent or from superannuation that’s not a factor that we take into account.”
The bosses of National Australia Bank and Westpac will be questioned next Friday.
Originally published as Banking inquiry hears Australian house prices to fall by at least 10 per cent