House Prices Could Drop Due to Pandemic, Commbank Says

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House Prices Could Drop Due to Pandemic, Commbank Says

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SYDNEY, Australia – Coronavirus pandemic caused fallout could lead house prices to drop as much as 30%, according to the Commonwealth Bank of Australia (CBA).

CommBank, one of the biggest banks, in the country, says that the worst-case scenario for the property market due as part of the effects of the health crisis is a 32% drop in property prices.

The Commonwealth Bank expects a prolonged downturn in the property market as a result of the coronavirus pandemic, which is heavily impacting the overall economy of the country. The bank also expects the unemployment rate of Australia could go up to 9% before the year ends before it can level back to 6.5%, which is possible only by 2022.

This disheartening scenario also assumed a two-year recession for Australia. The growth rate of the country could go down by 7.1% for 2020, followed by a 0.8% decline the following year. Australia has to face that much downturn for almost two years before it can experience a rebound of 2.3% in its growth rate by 2022, said the bank.

Meanwhile, having a V-shaped economic recovery or a shortened downturn for the country could see only an 11% decline in house prices. That could bring the country’s unemployment rate to a much better standing at only 8.25% by the end of the year.

Further, if the country will have a sharp rebound after the crisis due to the coronavirus pandemic, Australia could see a growth rate with only 6% downturn and could rise that same percentage by 2021. If that happens, the Australian economy could experience a much better standing with an expected 3% growth by 2022.

However, even with this much-improved scenario for the country’s growth rate, the percentage of Australians still out of employment could again experience a 6.5% decline in 2022.

The released scenarios from Commbank is part of its trading update for the March quarter. According to the bank, they set aside $1.5 billion worth of assets to help compensate for the potential losses caused by the ongoing health crisis due to the virus.

The Commonwealth Bank gave further information about the matter. It said that the primary reasons for the massive drop in the country’s property prices are underemployment and unemployment, which only got worse because of the pandemic. The changes and loss of income for most Australians added to the severity of the impacts of the health crisis. There is also uncertainty about the duration and overall effects of the pandemic to the country’s economy, CBA said.

Matt Comyn, the chief executive of CBA, stated in a statement that Commbank is doing all it can to help boost Australia’s economy during the challenging period. He added that the bank has enough funds set aside with substantial capital and a significant amount of excess assets.

Mr Comyn further stated that the strength of Commbank puts the bank in the right place to offer support to its customers, as well as the broader economy of the country.

Meanwhile, the National Australian Bank (NAB), another one of the largest banks in the country, also stated a cumulative 30% drop in house prices for April. The bank said that the property market could decline by 20.9% before the year ends, followed by an 11.8% drop the following year. However, NAB expects house prices could rebound in 2022, going up by 2.5%.

On the other hand, ANZ was more positive about the future of the economy post-pandemic. The bank said that the property prices could only decline by 10% all over the country. However, it commented that Melbourne and Sydney could experience the worse, with a decline of as much as 13%.

Meanwhile, the CBA released a figure for all its loan deferral requests. The bank said that they received around 144,000 applications for home loan repayment deferrals, which amounts to about $50 billion. That doesn’t include the 71,000 deferral requests for business loans, which totals more than $15 billion. CBA also said that they received deferral applications for over 25,000 personal loans.

According to the Commonwealth Bank, they saw an 800% increase on calls and online requests for loan deferrals since the pandemic started. The bank also stated that its move to reduce its mortgage repayments helped Australian households get relief of around $3.6 billion.

The move of the bank gained controversy as consumer groups criticized that it only leads to an increase in the loan period, which could boost the interest fees by thousands of dollars.

Meanwhile, the Commonwealth Bank stated that they were able to approve loans for around 6,500 applicants through the Guarantee Scheme by the Australian government. The program helped small and medium-sized enterprises in the country to have access to approximately $500 million worth of funding.

Most of the loan applications under the scheme came from the retail sector, as well as the construction, accommodation, restaurant and cafes, and the business services industries.

 

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