Australia house prices fell the most in 16 months last month and face “significant” downside risk as mortgage holidays and government wage subsidies expire in coming months.
Property values in major cities fell 0.8 percent last month, the steepest decline since February last year, CoreLogic Inc data released yesterday showed.
The slide was led by Perth and Melbourne, which is at the center of a new spike in COVID-19 cases that has prompted the government to lock down parts of the city.
“Despite the early signs of improved economic activity and a lift in housing turnover, the downside risk remains significant,” CoreLogic head of research Tim Lawless said. “The recent rise of active virus cases in Victoria is a reminder that the potential risk of a second wave remains a stark reality.”
The housing market faces a further test later this year, when current extraordinary levels of government and bank assistance start to wind down.
More than 485,000 home borrowers are on payment holidays, while about 3.5 million workers are on government wage subsidies, with both programs helping avoid the need for forced sales that could push down prices.
The wage subsidies are set to end in September, while banks might also toughen up criteria for borrowers wanting to extend the initial six-month payment deferrals.
“Eventually, the economy and borrowers will need to abide by market forces,” Lawless said. “This is when we could see a rise in mortgage arrears and the potential for a lift in urgent or forced sales.”
While Australia’s relative success in containing the virus means the economy is reopening quicker than in many other countries, the after-effects might linger for years.
A second wave of infections that slows or reverses the reopening could also set back the recovery.
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