While experts were forecasting that the property prices would fall between 5% and 30%, the data also has to account for the lower demand and the limited supply of stock in the market as well.
While the pandemic did cause a huge drop in listing volumes and transaction activity, property prices have remained resilient.
CoreLogic’s April 2020 Housing Value Index shows there was a 0.3% increase, even with the challenges faced by the property market due to COVID-19.
This increase occurred amidst the decrease in market activity, weak consumer sentiment and restrictions placed on the residential sales market.
Australia’s property market has been largely insulated from the broader decline in prices due to the repayment holiday schemes which has prevented the surge of distress sales and listings from entering the market.
The role of demand and supply
When the lockdown came into effect a month ago, there were predictions that property prices would fall.
There are four factors that affect supply and demand that would put upward pressure on house prices:
- Banks are offering repayment holidays so fewer people are forced to sell.
- People are delaying putting their property on the market, causing a shortage of supply. The number of new listings have fallen.
- Record low interest rates have caused more people to want to buy property.
- The government stimulus has kept consumer demand high.
The nationwide JobKeeper payment might keep employment in check, and unemployment levels might not rise to 10% as predicted by many.
Furthermore, building approvals could be more volatile in the coming months. According to research from St. Geroge, while building approvals increased from 15.1% in January 2020 to 19.9% in February 2020, these were pre COVID-19. They anticipate that declines in approvals will continue, especially for high-density markets.
These effects have been larger than the factors that have put negative pressure on house prices.
- Social distancing and lockdowns.
- Shifts in consumer spending.
- A drop in consumer confidence.
The lockdown restrictions that are in place are slowly lifting as Australia has flattened the curve to prevent the spread of the coronavirus. People have begun to go to work, and schools are open.
There is a slight increase in consumer confidence from the panicked lows recorded in March 2020. According to Roy Morgon, CommSec’s weekly consumer confidence figures, sentiment increased by 27.5% since hitting the record lows of 65.3 points on 29 March.
While property investors would look at auction clearance rates to see if it’s a buyer’s market or seller’s market, with auctions moving online and drastically reducing in number due to COVID-19, auction clearance rate is not as reliable as usual.
Google trends show the real story on Australian Property. There is a big increase in the number of people interested to buy a home, but no change in the number of people who want to sell.
Eliza Owen, CoreLogic’s Head of Research Australia, said the shortage in available housing supply, thanks to fewer property listings and lower seller activity, could be one of the reasons behind the market’s “relative stability”.
Australia’s regional markets
However, Australia’s property market is not homogeneous, and it is made of up of a multitude of property markets.
Regional markets had stronger growth than the combined capital cities in April. There was a 0.5% growth over the month for regional markets, while there was a growth of only 0.2% for capital cities.
According to Mr Lawless, Australia’s largest cities have a higher level of downside risk.
“Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents,” he said.
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