Coronavirus Australia: House prices could fall by up to 30 per cent in wake of pandemic

Australia’s biggest lender has forecast a huge drop to house prices in the wake of the coronavirus pandemic with two cities the hardest hit.

Australia’s biggest lender has forecast house prices could tumble by up to 30 per cent in the wake of the coronavirus pandemic and Sydney and Melbourne could be the hardest hit.

The predictions could wipe up to $300,000 from a $1 million house in Sydney.

All four of the nation’s big banks are now predicting double-digit falls in house prices as unemployment rises sharply. Westpac is forecasting a 20 per cent fall.

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But the Commonwealth Bank has now emerged from the pack with a grim outlook that’s even more alarming.

The Commonwealth’s Bank’s chief executive Matt Comyn has described the 30 per cent prediction as a ‘worst-case scenario’.

“We need to be prudent and consider a realistic downturn but also plan for a worst-case scenario, and that would see a sustained increase of unemployment,” he said.

Australia’s median house price hit $809,000 in the December quarter.

Under the CBA scenario that value of that home could crash by $242,700 to just $566,300.

But even under more benign prediction of an 11 per cent fall in house prices, median house prices could fall by $80,000.

The Commonwealth Bank has revealed 200,000 borrowers have already requested a repayment holiday after they lost their jobs or experienced COVID related financial distress.

The CEO admitted it was “very difficult to forecast” how many people who have lost their jobs as a result of coronavirus lockdowns will no longer be able to pay their loans and could be forced to sell up.

“We entered into a six-month repayment deferral, at the three-month mark we will communicate with our customers to understand what their current economic circumstances are and clearly for those who are able to return to work and who can start repaying their mortgage then we would encourage them to do so,” he told ABC TV’s The Business.

“But it’s possible that some customers within that population will need ongoing support from September.”

The worst-case scenario of a 32 per cent drop in house prices assumed a prolonged two-year recession, with unemployment to hit 9 per cent.

Westpac chief executive Peter King warned customers that prices could plunge earlier this month.

“House prices are expected to fall through the remainder of 2020, reversing the recent recoveries, particularly in Sydney and Melbourne,” he said.

“Unfortunately, ongoing international travel restrictions will continue to flatten inbound tourism and impact foreign student arrivals.”

Sydney’s median house price has increased by 19 per cent from $864,993 to $1,026,418 over the last year.

Samantha Maiden is news.com.au’s national political editor | @samanthamaiden