The government’s stimulus measures and leniency from the banks could help forestall forced selling by home owners, but a prolonged shutdown could send house prices plummeting, experts warn.

“It also helps that most Australian housing markets were generally into the next upswing phase of the cycle before the onset of COVID-19,” he said.
“Additionally, the temporary nature of this disruption implies economic conditions and consumer sentiment should improve once social distancing policies are lifted and the countrys economic operations resume.”
Robert Mellor, executive chairman of BIS Oxford Economics, said the current record low interest rates would also provide some cushion to home owners, at least in the near term.
“Interest rates are set to stay low for at least the next two years, so loan repayments will stay low,” he said.
“This, combined with the repayment pause offered by the banks, would help home owners hold on to their homes rather than sell and take a loss.”
Sharp price falls loom
While experts see a glimmer of hope amid the falling number of COVID-19 cases, most are worried about what happens after six months.
“If the shutdown is lengthy and goes on for more than six months, beyond the wage subsidies and bank repayment holidays, then prices could fall by at least 20 per cent due to falling demand,” said Dr Oliver.
“If alternatively the shutdown ends after a few months and we’re mostly back to normal and businesses will come off life support, then prices will only see a small decline of around 5 per cent.”
Louis Christopher, managing director of SQM Research, said the collapse in housing demand could lead to a price fall of about 30 per cent.
Louis Christopher says house prices could drop by 30 per cent if restrictions continue for more than six months. Peter Braig
“The real trouble is that on top of people losing their jobs and therefore not being able to buy a home, there is now zero migration,” he said.
“The closing of the border has meant that Australia will not get the 200,000 migrants this year, which represents a fairly robust underlying demand for housing.”
Sydney and Melbourne to cop brunt
Mr Christopher said the Sydney and Melbourne housing markets were most exposed because they get the lion’s share of international migration.
“The population growth rates in these two cities had been driven by strong migration growth for a long period of time,” he said.
“Melbourne has been growing by over 2 per cent per annum while Sydney has been running at 1.7 per cent growth rate.
“With zero migration, there’s a huge hole in housing demand that needs to be filled locally. But with high unemployment and tight lending by the banks, this is unlikely to be met.”
These two markets were also hugely overvalued, which make them susceptible to negative events like the pandemic, Mr Christopher said.
SQM Research estimates that Sydney was overvalued by 27 per cent and Melbourne by 33 per cent.
Digital Finance Analytics director Martin North said there is now a 60 per cent chance of house prices falling by between 30 per cent and 45 per cent due to high unemployment.
“Many households are over-leveraged, and now migration is stopped property investors are exiting while owners are trying to sell, so supply and demand is out of kilter,” he said.
“We have 1.2 million spare properties, and now lenders are tightening lending too.”