Mortgage supremo Mark Bouris is warning recent first homebuyers are most at risk of owing their bank more than their home is worth should an unemployment-led recession force them to sell in a plunging market.

His prediction of a recession next year is being made as the Commonwealth Bank, Australia’s biggest home lender, forecasts record falls that would cause mid-point house prices to crash by $200,000 in Sydney, Brisbane and Perth, as Adelaide and Melbourne suffered six-figure declines.

The executive chairman of Yellow Brick Road Home Loans is forecasting unemployment climbing above 6 per cent for the first time since early 2021, during COVID, as falling house prices hit State stamp duty revenue and forced cuts to transport infrastructure projects and government programs.

“That’s quite possible. If government expenditure drops, in other words, government stops spending so much money on capital works, our unemployment rate could easily get to six per cent. Easy,” Mr Bouris told The Nightly.

“Probably the biggest risk is recession, actual proper recession, an unemployment recession.

“If the States are losing stamp duty because house prices are going down and also the number of transactions are much less, State governments will stop putting money into the community, you can see where this is potentially heading.”

The first recession since 1991, associated with higher interest rates and unemployment, would put recent borrowers at risk of negative equity, where a forced sale would see them owing their bank more than their home is worth.

This would especially be the case for first-homebuyers who bought with the Federal Government’s 5 per cent deposit scheme, which was last year expanded to remove income caps.

“Those people that bought over the last couple of years, a lot of those would be seeing negative equity,” Mr Bouris said.

While less than 1 per cent of borrowers are in negative equity now, Reserve Bank modelling showed that would rise to 5 per cent of mortgage holders should home prices decline by 20 per cent.

The Commonwealth Bank is forecasting a 14 per cent national decline in home prices that would the worst on record, far surpassing the plunges during the early 1980s recession and the pre-COVID crackdown on interest-only loans.

It is also forecasting an 18 per cent peak-to-trough decline in Brisbane, which would see the mid-point house price plunge by $221,884, from the May peak of $1.233 million to $1.011m, based on Cotality real estate data.

An 18 per cent plunge is also forecast in Perth, which would see the median house price dive by $195,751 from the April peak of $1.088m to $891,756.

Sydney is predicted to suffer a 16 per cent decline which would spark a $257,127 fall in the middle-market house price from a February peak of $1.607m to $1.35m.

Adelaide is expected to suffer a 13 per cent plunge, wiping off $131,708 from a May peak of $1.013m to $881,430.

But Melbourne, which peaked much earlier in March 2022 as prolonged lockdowns wrecked the economy, was tipped to be the worst affected market as its median house price plunged by $129,786 or 13 per cent from $998,356 to $868,570.

“Melbourne’s the place where the greatest danger of negative equity is — there’d be a lot of people already in Melbourne with negative equity who’ve been buying over the last couple of years,” Mr Bouris said.

“Melbourne’s had the greatest falls from peak to trough; it’s not falling as much as everybody else is at the moment mainly because they fell before everybody else a long time ago, Melbourne’s the greatest number of people who have negative equity as of right now from the past four or five years.”

Ms Bouris said Australia already felt like it was in a recession, even if the economy hasn’t gone backwards for two consecutive quarters since the first COVID lockdowns in 2020.

Reserve Bank governor Michele Bullock on Tuesday said the latest rate hike, taking the cash rate to an 18-year high, would “make people feel like it’s a recession because they feel poorer” even if the RBA isn’t yet forecasting a recession but Mr Bouris said many borrowers were already feeling that way.

“I think we’ve felt like we’ve been in a recession before the last rate rise,” he said.

Australians who borrowed during the pandemic, when mortgage rates started with a “two” were feeling particularly poor with variable rates now approaching 7 per cent.

“Anybody who’s borrowed, for example, since 2020, they would definitely feel like they’re in a recession, that is, not having as much take-home pay they would ordinarily have once they pay the taxes and their mortgage,” Mr Bouris said.

“They’d have to be a very big percentage of Australian mortgage holders who have borrowed over the last six years — high debt, high interest rates, much higher than they applied for and their wages have probably stayed the same.”

Commonwealth Bank senior economist Trent Saunders said home prices were likely to plunge at the fastest pace in records going back to the early 1980s because significant relief from the Reserve Bank would be unlikely following this downturn, exacerbated by Labor’s changes to negative gearing and capital gains tax concessions.

“The reason why we’re seeing a larger decline in prices in this cycle is you’ve got the interest rate headwinds, you’ve got the headwinds from the housing tax policies plus you have this broader unwind from some of the previous gains,” he told The Nightly.

Two rate cuts in August and November next year, as forecast by CBA, would only take the Reserve Bank cash rate back to 4.35 per cent, where it was until the end of September this year.

“The big difference in this cycle is that, on our forecasts, we’re not expecting a deep cutting cycle following this,” Mr Saunders said.

“We have the cash rate still settling at a fairly high level.

“We’re potentially looking at an extended period of interest rates being noticeably higher than what they’ve been on average over the previous decade.”

Unlike the major banks, Mr Bouris doesn’t see rate cuts occurring in 2027.

“No, I’m definitely not thinking about rate cuts next year. No way,” he said.

While the RBA cash rate is at the highest level since December 2008, the average new mortgage during that period has climbed from $254,000 to $731,000.

Home loan debt has gone from comprising 4.2 times an average, full-time salary to a multiple of 6.8 as the typical wage has grown from $60,658 to $108,352, lagging behind the growth in home prices.

Even during the global financial crisis 18 years ago, government spending made up 25 per cent of gross domestic product in 2008-09 compared with 26.9 per cent during the last financial year.

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