Australian home prices seen falling 7% over next year - RBA papers

SYDNEY, June 18 (Reuters) - Australian home prices are expected to fall 7% over the next year largely due to the hit to buyer confidence from the COVID-19 pandemic, the central bank said in its baseline forecast for the property market.

The Reserve Bank of Australia (RBA) published the information on Thursday in response to a freedom of information request. It covered its internal papers and emails from March to May on the outlook for house prices and the housing market in general, including some redacted speaking notes for its May 5 policy meeting.

The RBA also had a less pessimistic scenario for the housing market where prices fall just 2% while in the downside scenario they are seen tumbling by 15%.

“In the baseline scenario, the magnitude of the confidence shock is assumed to be larger than experienced during the financial crisis,” the RBA noted.

“In our baseline and upside scenarios, some degree of forbearance by the banking sector is assumed to mitigate larger declines in prices caused by forced sales and financial stress.”

The RBA noted that social distancing measures that kicked in around mid-March were expected to have an even larger effect on housing transactions than on prices with turnover seen plunging 70% in the June quarter.

Dwelling investment is also set to suffer a sharp hit as demand for new housing has “declined substantially since mid-March and is expected to decrease further.”

The housing market has been a pillar of Australia’s economic success in recent years so a sharp downturn in the sector augurs poorly for the nation.

More recently though, the RBA has suggested Australia’s recession could be “shallower than earlier expected”.

“This raises the possibility that the RBA is starting to factor in a smaller decline in house prices,” NAB economist Tapas Strickland said.

Australia, with just over 7,300 coronavirus cases, has not reported a death from the disease in more than three weeks now, enabling states and territories to start reopening their economies. (Reporting by Swati Pandey; Editing by Shri Navaratnam)