"Lenders offering deferred mortgage repayments (for six months) is critical in helping to minimise 'forced selling'," economists George Tharenou and Carlos Cacho said.

"Furthermore, if price falls do become very significant and potentially a macro-stability risk, we would expect further material government support."

This year's outlook for the residential market has turned sharply after an optimistic start that had economists predicting high single-digit price gains kept only in check by affordability constraints. The changing fortune was visible in CoreLogic housing price figures for March that on Wednesday showed price growth took a hit mid-month, as social distancing and other measures designed to slow the spread of the virus derailed the market.

Conditions will worsen further. Home sales volumes will "collapse", more than halving from their 450,000-a-year level as home inspections and auctions remain banned under COVID-19 restrictions, and prices will start falling, the UBS economists said.

The weakened environment would also dampen the pipeline of new housing construction and pull the annual rate of new dwelling approvals – which stood at 172,000 in the latest figures reported on Wednesday – as low as 100,000 in coming months, they said.

The extent of the impending decline remains unclear, as HSBC economist Paul Bloxham said this week. Earlier this month, Mr Tharenou and Mr Cacho said a full pandemic scenario could cut dwelling prices between 10 per cent and 20 per cent but their research note on Thursday also stopped short of publishing a new number.

"The extent and duration of prices falls is very uncertain," they wrote.


The extent of decline would depend on the steps governments took to stabilise the market, which could include expanding the federal first home-buyer scheme to help overcome the "deposit gap", cash payments for home purchases (such as through first home owners grants) and temporary reductions in state government charges such as stamp duty and land tax.

Separately, ANZ on Thursday said a drop-off in online searches for housing-related terms measured by its Housing Search Index, which correlates closely to housing prices, indicated prices would start to fall from as early as this month.

It was also unclear how quickly the market would recover, the bank said.

"Once the social distancing measures are removed, we think it is unlikely

prices will simply bounce back," ANZ Senior Economist Felicity Emmett said.

"Despite enormous fiscal support, unemployment is still expected to rise sharply through this period and is unlikely to fully recover for some years. This, with a possible reassessment of debt appetite, will likely result in a slow recovery for house prices."