National house prices fell less than half of one per cent in May, but analysts believe steeper declines could follow.

CoreLogic’s latest home value index showed national property prices dropped 0.4 per cent over the month, with five of the eight capital cities registering month-on-month falls.

But analysts told The New Daily they could drop significantly if banks and governments fail to address the ‘fiscal cliff’ in September – the moment when loan deferrals expire and government stimulus runs dry.

A closer look

The data shows the pandemic affected each market differently in May.

Darwin performed worst of the nation’s capitals (-1.6 per cent), despite being one of the first to ease coronavirus restrictions.

Prices also fell substantially in Perth (-0.6 per cent), while rising in Adelaide (+0.4 per cent), Canberra (+0.5 per cent) and Hobart (+0.8 per cent).

Among the larger markets, Melbourne led the price falls.

There, the median property value fell 0.9 per cent, while in Sydney and Brisbane it declined 0.4 per cent and 0.1 per cent respectively.

Regional centres flatlined.

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CoreLogic head of research Tim Lawless said the ongoing resilience may soften ‘worst-case’ predictions, which includes Commonwealth Bank’s warning of a 32 per cent crash if Australia’s downturn extends beyond two years.

With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected,” Mr Lawless said.

“While downside risk remains, the trajectory of the housing market is looking healthier than what we were expecting a bit over a month ago … consumer spirits have lifted, vendors are starting to test the market and buyer numbers have risen.”

It’s worth noting, too, that national prices are still 9.7 per cent higher than this time last year – buoyed by a V-shaped recovery stretching back to July.

Prospect of ‘the cliff’ could prompt house prices to crash

CoreLogic property analyst Eliza Owen said an 18.5 per cent boost in sales activity showed buyers and vendors were returning to the market, even though stock is down 25 per cent on last year’s levels.

Ms Owen said resurgent consumer confidence and fewer distressed property sales will minimise price drops in the short term, but September will be the market’s litmus test.

With the government expected to end JobKeeper and slash JobSeeker to pre-coronavirus levels, struggling home owners may be forced to list their homes at discounted prices.

“We’ve seen signs the economic conditions are recovering better than expected and that was certainly voiced by the Reserve Bank governor, who said declines in reduced working hours aren’t as bad as estimated,” Ms Owen told The New Daily. 

September will be a test for the housing market when repayment holidays end, but already we’re seeing institutions working with mortgage holders to make sure they can cover housing costs in some capacity.”

CommSec senior economist Ryan Felsman noted the current pricing falls in the nation-leading markets were largely driven by the top end of the market.

“What we’re seeing in Melbourne in particular is properties in the top 25 per cent of capital value were down by 1.3 per cent and Sydney’s were down by 0.6 per cent,” Mr Felsman told The New Daily. 

“We’ve also seen overseas demand weakness around the investor, the weak rental market reducing confidence in potential investors, and cautiousness around the economic downturn as we still have potential for a second wave of infections.”

• Read more: Economic downturn ‘not as severe as earlier thought,’ says Reserve Bank

But Mr Felsman said May’s fall could be recovered in part by the government’s next round of economic stimulus, which is expected to include new home grants of up to $50,000 and an additional cash injection for prospective renovators.

Why some cities are bucking the trend

According to CoreLogic, three cities defied their larger counterparts: Adelaide, Hobart and Canberra.

Mr Felsman said their limited exposure to coronavirus could be a major source of their trend-defying performance, as well as limited exposure to declining international student numbers.

“Adelaide is also typically a much more stable market than Sydney or Melbourne, as it has a history of being less volatile and cyclical,” Mr Felsman said.

“Hobart only had 2.2 per cent of live listings that were aggressively discounted, and usually more heavily discounted properties is a sign of stress in the market.”

Although regional Australia’s prices flatlined in May, several centres “adversely impacted” by higher unemployment saw correlating drops in house prices, as noted by CommSec Research.

The most notable drops each saw unemployment rates rise between 2.5 and 5 percentage points on average.

They included the Queensland outback (house prices down 4.3 per cent), NSW’s Coffs Harbour-Grafton region (down 1.5 per cent), and Victoria’s Shepparton (down 1 per cent).