One property analyst warns the worst-case scenario, where coronavirus restrictions are extended for at least six months, could see housing prices tumble by up to 30 per cent.

Key points: Housing prices are expected to decline, with SQM Research forecasting falls of up to 30 per cent if restrictions are extended

Housing prices are expected to decline, with SQM Research forecasting falls of up to 30 per cent if restrictions are extended A fall in overseas migration is forecast to hit the Sydney and Melbourne sale and rental markets

A fall in overseas migration is forecast to hit the Sydney and Melbourne sale and rental markets A true test for property values may come once mortgage repayment holidays end, says CoreLogic's Eliza Owen

Louis Christopher, the founder of SQM research, has told The Business house prices will fall regardless of when restrictions are lifted from here, but the timeframe will have a major impact on the depth of a property price downturn.

Mr Christopher says a "V-shaped" recovery, "where dwelling prices fall in the June quarter but start to rise again in the September or December quarters" could still occur if COVID-19 cases continue to fall and restrictions are gradually lifted during May.

However, if a second wave of the virus occurs and restrictions were prolonged, he expects a "major fall" in housing prices.

"When I say major we're talking up to a 30 per cent decline over a 12-month period, with the bulk of those declines occurring in Sydney and Melbourne," he said.

"We're not saying this is definitely going to happen, it's more a warning that if we were to see the restrictions with us for the full six months at their current levels, this is what would happen."

Fall in migration to hit Sydney, Melbourne markets

Mr Christopher says Sydney and Melbourne will bear the brunt of the downturn, as they are the most overvalued housing markets in the country and are much more reliant on net overseas migration than other capitals.

Commonwealth Bank economists are also forecasting the Sydney and Melbourne markets to be hardest hit, due to their reliance on population growth and the nature of their economies.

"The NSW and Victorian economies have more exposure to the most heavily impacted services sectors and less exposure to some of the more insulated sectors (i.e. mining and agriculture)," CBA senior economist Gareth Aird said.

In a recent note, CBA put the estimated decline in capital city prices at 10 per cent over the next six months (or 20 per cent on an annual basis), with similar forecasts from other economists.

However, Mr Aird noted that forecasting is "incredibly challenging" right now given the unknown length of the restrictions.

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Regardless of which scenario plays out, Louis Christopher says the rental markets in the nation's biggest capitals will take a big hit.

"We're going to see a significant rise in rental vacancies and a fall in rents," he said.

SQM Research's weekly data on asking rents has already recorded a 5 per cent fall in rents in Sydney and a 2 per cent fall in Melbourne.

With new dwellings being built to keep up with population growth each year, Mr Christopher says the drop in net migration, as well as short-term holiday rentals being transferred to the residential market, will see a surplus of around 100,000 dwellings for rent.

"That should translate into a doubling of rental vacancies across the country, which will be great for tenants but won't be so good for landlords."

Mr Aird expects falling rents to feed through to falling prices, while noting that current policy changes at the state level, changing rules around evictions due to rental arrears during the coronavirus crisis, will act "as a major deterrent" to some would-be landlords investing in property over the next six months.

'True test' once mortgage holidays end.

As job losses, stand-downs and subsequent drops in income mount, and the Reserve Bank governor warns of the worst economic contraction since the 1930s, Eliza Owen from CoreLogic says it "seems hard to digest" how property prices are yet to tank.

"Such extreme contractions in the economy could exacerbate the structural risk of high housing debt in Australia," Ms Owen, CoreLogic's head of research for Australia, said.

"At December 2019, the housing debt-to-income ratio rebounded to its record high of 142.1 per cent."

To date, the price falls are yet to materialise but growth has slowed — CoreLogic's daily dwelling value index puts the change in dwelling values at +0.4 per cent over the past four weeks.

However, Louis Christopher says the leading indicators are pointing to an imminent decline.

"Over the past few weeks, auction clearance rates have plummeted. They were at the start of the year averaging between about 65-75 per cent," he said.

Last weekend, the auction clearance rate fell to 30.2 per cent across the capital cities, the lowest on CoreLogic's records.

Ms Owen expects the mortgage repayment holidays offered by the major banks are delaying the onset of the price declines, as is the very low volume of properties being listed for sale.

Over the four weeks to April 19, CoreLogic found a 28.7 per cent decline in new listings compared to a year ago, while total listings of housing stock were down 23.8 per cent.

Property listings have collapsed and CoreLogic says people aren't selling unless they have to. ( Supplied: CoreLogic )

"The only people listing their property in the current climate may be those who need to sell because paying off a mortgage is no longer affordable. But the number of people in this situation is minimised by a break in mortgage repayments," she said.

"A true test for property values may come once these 'holiday periods' end.

"Financial regulators, the RBA and the banking sector may extend reprieve for mortgage repayments in the scenario that the economy has not made improvements within 6 months."

Louis Christopher agrees an extension of mortgage relief is likely if the downturn drags on.

"I think the banks will want to avoid a mass repossession event … it's our view throughout this crisis that we're unlikely to see many forced sales unless we were to see a major extended economic downturn that lasts say 12-to-24 months, then the banks might have to move towards repossession," he said.