The Australian property market has so far not etched any falls in value due to coronavirus, but the chairman of the Australian Prudential Regulation Authority (APRA) has warned the market is heading for a cliff as home owners struggle.
Speaking on Thursday to a senate committee into the government’s response to Covid-19, he said APRA often talks of “the cliff, which is when everything ends in six months’ time”.
JobKeeper payments and JobSeeker boosts will end in September, at around the same time that banks’ six month mortgage deferrals also expire.
Australians have deferred around $250 billion in loans, but a sharp end to JobKeeper and JobSeeker payments could spell trouble for those homeowners, as they’re suddenly required to resume normal payments.
“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.
“I think the risks are there whether the loan deferral schemes end or not.”
Byres said Australia has been hit by sharp increases in unemployment and income losses.
“Moreover, both the economic cost and outlook in relation to COVID-19 remain highly uncertain,” he said.
“As a result, there are many difficulties ahead for the financial system – we see this as a long-term challenge, and are approaching it with a long-term perspective.”
The Commonwealth Bank recently flagged a 32 per cent fall for house prices, wiping $285,000 from the median Sydney value.
The bank said these falls would largely come from increased unemployment, underemployment and pay cuts compounded by already high house prices.
WA Treasurer, RBA governor echo calls to extend JobKeeper
On Thursday, Western Australia’s Treasurer Ben Wyatt cautioned the government against a “hard ending” to JobKeeper payments.
Wyatt said even WA’s mining industry would not be enough to prevent a slide into recession in 2021.
“I think that the Commonwealth will need to transition JobKeeper. I don’t think a hard end is actually in the Commonwealth’s interest, the state’s interest, or Australia’s interest,” he said.
“Hopefully they’ll end up coming up with an alternative, perhaps transition plan ... as opposed to a hard end.
“We can’t afford to have it forever but a hard end I don’t think is practical or in the interests of the nation.”
RBA governor Philip Lowe has also said the Australian economy may hit a “critical point” when JobKeeper and JobSeeker measures expire, warning that a sharp switch off could have severe ramifications.
"It's clearly going to be a critical point when that scheme [JobKeeper] comes to an end and also when the deferral for six months of mortgage payments and other payments that the banks are offering … so that's a critical point for the economy," Lowe said.
“If we have not come out of the current trough in economic activity, there will be, and there should be, a debate about how the JobKeeper program transitions into something else, whether it's extended for specific industries, or somehow tapered,” Lowe said.
The Grattan Institute has also warned of a “cliff” should support measures be abruptly switched off.
“The sudden withdrawal of massive government spending will leave an enormous hole in economic activity and the incomes of businesses and households.”
CoreLogic head of research Eliza Owen said Covid-19 has “completely changed” the operating environment for the Australian housing market.
“On aggregate, the Australian housing market is now on the cusp of another downturn,” she said.
“By mid-May, onsite auctions were reinstated in most states and territories, and property inspections are gradually opening up. But new housing demand is likely to see a continued decline, as borders remain closed to overseas migration, and unemployment rises.”
And, she added, another factor to consider is how 97.4 per cent of businesses in Australia have less than 20 people, which is why stimulus measures have targeted small businesses.
CoreLogic will release housing figures for May on Monday 2 June.