S&P Global Ratings say the second Melbourne COVID lockdown and lack of migration will hit house prices by 10 per cent.
The forecast has house prices dropping 10 per cent nationally and has the market bottoming out by around the middle of next year.
Ratings director at the company Anthony Walker said Melbourne would be hard hit.
“We think Sydney and Melbourne are two markets that are likely to drop by more than 10 per cent, but Melbourne is weaker as population growth tumbles,” he told Australian Financial Review.
“Victoria’s population has been growing by around 1.6 per cent annually over the last 15 years.
“However, it’s forecast to rise by just 0.6 per cent next year – that’s 1 per cent lower than it has for the last 100 years.
“It’s the lowest population growth since 1917, so the housing demand from migrants is going to collapse, as well as the demand from everyone who’s in the country already because of the job situation.”
JobKeeper is helping to ensure people can keep paying their mortgages, and is set to be extended at least in part, but there are questions around what will happen to mortgage arrears when it is reduced or cut off.
Director of structured finance at S&P Erin Kitson spoke to AFR.
“We expect than many borrowers will remain distressed when the forbearance and government support end,” she said.
“We expect arrears might peak higher during COVID-19 compared to the 1.69 per cent level we saw during the GFC because the forecast unemployment rate at around 7.5 per cent is larger.
“Investors may face difficulty refinancing their loans if rents continue to fall.”
“We expect to see arrears in areas and states where the path to economic recovery is taking longer, for example Victoria, top be more elevated when they eventually surface, which is more likely to be around the first quarter of 2021.”
For many, 2021 can’t come soon enough.