Last Updated: 10th June, 2020

Coronavirus & The Property Market: Large Price Falls Unlikely

Published by Otto Dargan on June 5, 2020

Gloomy forecasts of property price falls between 20% and 30% are now looking very unlikely unless a second wave of Coronavirus hits Australia.

While the May 2020 CoreLogic Home Value Index revealed a 0.4% drop in national dwelling values, it was not the drastic plunge in values predicted by some industry commentators.

CoreLogic head of research, Tim Lawless said, “Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction. With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

In fact, CoreLogic reports national home values are still 8.3% higher than they were a year ago, with regional markets among some of the most resilient.

Signs of property market recovery

Despite the weaker economic conditions induced by COVID-19, housing values showed the first signs of recovery in May 2020.
  • Consumer sentiment has been improving since April 2020. The weekly ANZ Roy Morgan index for the past 8 weeks reveal that the index was 42% higher than what it was in March 2020. The Westpac-Melbourne Institute Index of Consumer Sentiment rebounded 16.4% to 88.1 in May from the extremely weak 75.6 read in April.
  • ANZ Consumer Sentiment 26 May 2020

    Source: ANZ-Roy Morgan, ANZ Research

  • The improvement in consumer sentiment is also reflected in increased listings, with new property ads up 8.1% compared with the end of April 2020.
  • While new listings have increased, the total listings count (which is a sum of new and re-listed stock) is trending downwards. The lower stock levels mean supply is now meeting , not exceeding, demand.
  • Auction clearance rates are also improving, from 30.2% in late April to 62.7% in the week ending 24 May 2020.
  • The REA Weekly Insights Weekly Demand reveal there is an increase in the volume of buyer intent, i.e. there is an increase in the number of people looking to buy a home.
  • REA Insights Weekly Demand Report 4 June 2020

    Source: REA Insights Weekly Demand Report

What is the outlook for the property market post COVID-19?

Property prices are likely to remain stable because:

  • The record-low mortgage interest rates of below 3% mean household interest payments compared to disposable income is low. Low mortgage costs also mean lower funding costs for an investment property.
  • Demand and supply for property are currently on par.
  • Government measures supporting households, business and employment along with the repayment holidays offered by the banks have prevented a sharp rise in forced home sales and mortgage delinquencies.
  • However, property prices might fall under the following scenarios:

    • The government support measures end and unemployment rises to 8%. This could trigger debt servicing problems.
    • The period for repayment holidays will end, which might boost forced sales and create an oversupply of dwellings.
    • The travel bans have led to a decline in migration numbers. Furthermore, there are predictions that population growth will only be 0.7% in 2020-21. This would cause a fall in demand for property. This scenario would reverse the years of undersupply that have kept prices high.
    • The recently announced $25,000 HomeBuilder grant could boost housing construction. If the supply of dwellings increases when demand is low, property prices will fall due to oversupply.

    Should I buy now or wait for prices to fall?

    The best strategy is to get pre-approved for a home loan and search for suitable properties.

    You may find you have a stronger hand in negotiations, especially in the current environment when buyer demand is low.

    There is data lag when it comes to property prices, so events that are affecting the property market will only be reflected a few months later. This data lag may not help you in your property buying decision.

    Our mortgage brokers are here to help you navigate the home loan process to make it smoother and easier to get a home loan.

    Call us at 1300 889 743 or fill on our free assessment form.