Deadline could cause chaos for property
House prices in Australia are set to tumble as regulators warn the end of COVID-19's mortgage honeymoon is likely to trigger forced sales.
First home buyers, investors and businesses have now deferred $250 billion in loans after they were laid off, lost shifts or forced to close their doors because of the coronavirus.
But a reckoning is looming for thousands of families when the current arrangements expire in September.
Prudential Regulation Authority chairman Wayne Byres told a Senate committee into COVID-19 on Thursday that some customers will be unable to repay their loans.
"We often talk of the cliff, which is when everything ends in six months' time,'' Mr Byres said.
"No-one has an interest in going off the cliff, so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time."
Deloitte Access Economics' Chris Richardson said the impact of forced sales on house prices might not be as great as the freeze on immigration.
"It's a $7 trillion dollar market. So, $250 billion is important, but its not make or break,'' he said.
"Population is smaller than expected, by the better part of 300,000 people.
"It has quite an impact on demand trends. You would be expecting those people would have occupied 80,000 homes."
However, he predicted the fall in house prices might not be as high as some economists had predicted.
"I would expect Australian average prices to fall by less than 10 per cent,'' he said.
Melbourne University economist Dr James Brugler took a gloomier view in some metropolitan cities, particularly Perth where he is forecasting a 20 per cent drop in house prices.
"Most households have only a small amount of borrowings against their home and are generally in good positions to withstand a fall in home values,'' he said.
"However, households that have borrowed more money will feel the impact on their home equity more.
"In Sydney, Melbourne and Brisbane, we calculate that a quarter of households will see a fall in equity of 10 per cent or more.
"In Adelaide, the figures are less severe but for Perth, one quarter of households face a reduction in home equity of 20 per cent or more. This is because the Perth property market is more exposed to movements in stock prices, and average household debt levels are higher relative to home values."
However investment properties, including units, might fall more as people dropped out of the market.
Desperate workers are also raiding their super accounts as the coronavirus shutdowns slashes casual workers' hours and employment
The Morrison government extended early access rights to retirement savings for people experiencing financial hardship as a result of the coronavirus.
Eligible claimants can withdraw $10,000 before June 30 and a further $10,000 after July 1.
Labor Senator Kathy Gallagher said on Thursday it was clear some workers had been forced to destroy their nest egg.
"Over 117,000 accounts have basically been drawn down to zero,'' she said.
"When we're looking at the retirement incomes of people, if people are drawing their accounts down to zero, that's going to make it a very long hard recovery back for their retirement incomes and it's a point we made where we think early access super shouldn't have been the point where government went to first."
Senator Gallagher said she was concerned by the Reserve Bank Governor Phil Lowe's warning that it would be "a mistake" to end JobKeeper prematurely.
"We want the government to be proactive about making sure that we don't fall off a fiscal cliff in September,'' she said.
"That means people are given notice so there's confidence in the economy and the Reserve Bank governor spoke about that today, saying confidence was part of the economic recovery. Now clearly, that confidence isn't going to be there if everyone thinks everything is cut off in September.
"Whether they're prepared to taper, whether they're prepared to target, we're not having a budget until October. We're saying you need to be clear about that. You need to be upfront, you need to be considering."
Originally published as Deadline could cause chaos for property