Australian house prices could tumble 12pc in 2021, says HSBC’s Paul Bloxham

Low interest rates, combined with the containment of the outbreak, would make the housing market more attractive.

Stalled migration and rising unemployment were likely to drive housing oversupply. Picture: Tim Hunter.

The Australian house prices could tumble 12 per cent in 2021, as a U-shaped recovery and COVID-19-related policies take their toll, said Paul Bloxham, chief economist at HSBC.

Falling housing prices across the second half of the year are predicted to write off a portion of accumulated price gains, Mr Bloxham predicted, that would remain 4 to 6 per cent higher. However, stalled migration and rising unemployment were likely to drive housing oversupply.

On the positives, Mr Bloxham said low interest rates, combined with the containment of the outbreak, would work to make the housing market more attractive to borrowers. However, rising unemployment could curtail the number of potential borrowers, while lenders were more cautious.

Earlier this month, the Reserve Bank of Australia said it expected unemployment to rise to 9 per cent by Christmas, with the economy forecast to contract by 8 per cent, before recovering next year.

Adding to the pricing pressures was ongoing border restrictions, with stalled migration weakening housing demand and compounding oversupply, which although modest, existed even before the pandemic hit.

On May 2, Prime Minister Scott Morrison said he expected net migration to fall by 30 per cent in this financial year, and a further 85 per cent in 2020-21.

The overall impact, Mr Bloxham said, was national housing prices to fall between 2 per cent and 12 per cent in the 2021 financial year. The drop could even be deeper if the economic recovery was an “L” or “W” shape.

Mr Bloxham said the housing market indicators were already showing signs of weakening, as social distancing measures weakened housing turnover. National housing prices had stagnated over the past month, while in Melbourne, prices had fallen by 1 per cent.

While smaller state markets might avoid the worst of the tumble, NSW and Victoria - due to their reliance on migration - were likely to be affected to a greater degree, Mr Bloxham said, NSW in particular, as housing supply continued to outpace demand.