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House prices could fall 32 per cent under ‘prolonged’ slump: CBA

By Jessie Stewart

The Commonwealth Bank has released modelling showing house prices could fall by almost a third by the end of 2022 under a prolonged economic slump, as it braces for a sharp rise in soured loans caused by the coronavirus.

However, chief executive Matt Comyn also cautioned the outlook was highly uncertain and the housing market would be strongly influenced by the level of unemployment, adding that he did not expect a sharp drop in housing in the short-term.

The country’s biggest bank on Wednesday became the latest lender to highlight the possibility of sharp falls in the property market if the economy faces a long and severe recession.

As the bank reported a 41 per cent drop in profits during the March quarter to $1.3 billion, CBA unveiled modelling of various scenarios that might face property owners as a result of the economic shock unleashed by coronavirus.

Its most pessimistic scenario showed the economy shrinking by 7.1 per cent this year and 0.8 per cent in 2021, before a 2.3 per cent rise in 2022. Over this period, the modelling showed house prices falling by 32 per cent.

Under a less dramatic downturn scenario, the modelling showed the economy shrinking by 6 per cent this year, before a 6 per cent bounce-back in 2021 and a rise of 3 per cent in 2022. This scenario pointed to a cumulative fall in house prices of 11 per cent.

Mr Comyn emphasised that the outlook for the economy and house prices was uncertain, but said the bank expected prices to fall as a result of the shock unleashed by COVID-19. Mr Comyn said the 32 per cent fall produced by CBA’s modelling was “highly variable and clearly unemployment is a key driver of that.”

“We expect there’s going to be downward pressure on house prices, although in the near term the level of stock that’s coming to the market has contracted quite rapidly,” Mr Comyn told The Sydney Morning Herald.

“I don’t think it will be pronounced in the near term, but clearly if there’s a sustained economic downturn and you’ve got persistently high levels of unemployment, then that’s going to flow through to a number of different sectors, including the housing market.”

Source: www.theage.com.au

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