The economic impacts of the COVID-19 outbreak will likely derail the momentum of the housing market this year, according to ANZ's latest report.
ANZ projects price declines across capital cities, with substantial drops predicted for Sydney and Melbourne. On average, the peak-to-trough decline is expected to hit 10% across the capital cities.
Prices in Sydney, Melbourne, and Hobart are expected to fall by as much as 13% until mid-2021. Brisbane, Darwin, Adelaide, and Canberra are also poised to register price declines of around 5% to 7%.
Of all markets, Perth is expected to be hit the least, as prices in the city are only projected to drop by 2%.
Felicity Emmett, senior economist at ANZ, said prices will likely bottom out in mid-2021, but the recovery will be gradual, given that the unemployment rate could remain above 7% until 2020.
"Already, nearly a third of Australian households have reported a deterioration in finances due to the pandemic. But this does not capture the scale of the loss of income, with households across the income and industry spectrum experiencing cuts to hours and wages," she said.
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Emmett estimated the unemployment to hit close to 10% as a result of the economic shocks due to COVID-19. This is the highest unemployment rate since the recession in the early 90s.
"This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home," she said.
Michael Yardney, director of Metropole Property Strategists, said while there is a possible price decline, not all markets will be equally affected.
In a think piece in Property Update, Yardney said that investment-grade and A-grade homes could fall in value by around 5%. C-grade properties will be the hardest hit, as there will be a flight to quality.
"But this will be on very low levels of transactions and the pace of recovery from that point will depend on the state of the wider economy," he said.