The downbeat outlook was a sharp reversal from ANZ’s January forecast of 8 per cent dwelling price growth this year.

ANZ senior economist Felicity Emmett said the deterioration in household income will be the biggest driver of price weakness.

“We expect unemployment to rise to just under 10 per cent, the highest

since the early 1990s’ recession,” Ms Emmett said.

“Already, nearly a third of Australian households have reported a deterioration in finances due to the pandemic. But this does not capture the scale of the loss of income, with households across the income and industry spectrum experiencing cuts to hours and wages.

“This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home.”

Ms Emmet said investor demand was likely to be hit especially hard given the weakness in the rental market,described as a “collapse” in the report titled Australian Housing Update: COVID-19 derails the housing recovery.

“Vacancy rates are set to rise sharply over coming months, with the rental market likely to be even harder hit than the new home market,” she said.

Rental stock has surged over the past three months as short-term rentals switched to longer-term leases and some vendors opted to list their properties for rent.

This comes amid weak demand due to the overseas student market drying up and some renters being forced to move back to the family home amid income losses.

CoreLogic reported a sharp rise in rental listings in April, particularly in inner Melbourne with a 36 per cent jump in the number of rental properties for rent, while Sydney recorded a 34 per cent increase.

As a result, the advertised rents have dropped by 0.7 per cent over the month in major cities – the largest monthly fall in the history of the series.

“Alongside still-elevated levels of completions of new high-rise apartments, particularly in Sydney these factors suggest vacancy rates and residential rental yields will decline further over the next year or so,” said Ms Emmett.

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