After five months of decline, the national home value index finally moved back to a positive in October 2020. According to CoreLogic, the index shows a rise of 0.4%. Every capital city in Australia, except for Melbourne, recorded a rise in their values over October 2020. Source: CoreLogic Home Value Index, October 2020In Adelaide, Hobart, Darwin and Canberra, dwelling values increased by 1% or more. Even Sydney experienced a small uptick of 0.1%. While Melbourne experienced a 0.2% decline, it is the smallest drop in values since the COVID-19 downturn in April 2020.
What are the signs of recovery?
Consumer confidence has been increasing since Australia managed to flatten the curve. In October 2020, there was an 11.9% surge in the Westpac-Melbourne Institute consumer sentiment index.
The persistently low level of advertised housing stock has supported price growth. Stock levels rose less than 1% during October 2020. Over the past four weeks to October 2020, new listings rose by 25.2% compared to September 2020. Low stock levels in the face of new listing numbers show a strong absorption, as buyer demand exceeds advertised supply levels.
Nationwide, there was a 7% increase in home sales in October. Sales activity was only 1.5% lower than last year, weighed down by an 18.2% drop in sales across Melbourne.
For the first time since March 2020, Sydney’s auction clearance rate went over 70% in October. Even in Melbourne, while there were no auctions in September due to the lockdown restrictions, the final week of October recorded over 600 auctions with a 75.8% clearance rate.
Australia’s property market is responding to the stimulus of lower mortgage rates and improved consumer sentiment related to budget announcements and the low number of COVID-19 cases. With private home inspections possible in Melbourne, there is a rise in new property listings, clearance rates have lifted, and buyer activity is recovering. If the trend continues, Melbourne might trend towards recovery over the next few months.
Unit rents vs house rents
Through COVID-19, CoreLogic has recorded a divergence between house rents and unit rents. Between the end of March 2020 and October 2020, capital city rents were down a cumulative 4.8%, while houses recorded a 0.4% rise in rents. Even in October 2020, city unit rents dropped 0.7%, while house rents rose 0.5%. The difference between house and unit rental performance is most prominent in Melbourne and Sydney. According to Tim Lawless, CoreLogic head of research, “Both cities have a multi-year history of significant supply additions to the high-rise unit sector where the large majority of properties are owned by investors. From a demand side, the evaporation of overseas migrants, including foreign students, has led to a sudden and material drop in the number of renters requiring accommodation. Additionally, weaker labour market conditions across industries where workers are more likely to rent than in any other sector have further impacted rental demand.“
The effect of the rate cut on the property market
On 3 November 2020, the Reserve Bank of Australia (RBA) announced that it cut the official cash rate to an unprecedented low of 0.1%Low mortgage interest rates are a key factor supporting the housing market as it incentivises home purchase activities. Historically, cuts to mortgage interest rates have led to an increase in housing market activity and are generally aligned with upwards pressure on dwelling prices. The headwinds currently facing Australia’s property market include the winding down of government support measures like JobKeeper and the home loan deferral period coming to an end. However, with RBA’s announcement of the low cash rate of 0.1% along with other government incentives like the HomeBuilder grant and stamp duty concessions, these could cushion the blow for the property market. We will have to wait and see if the banks and lenders pass on the rate cut. If they do, then mortgage rates will fall even further from their record lows.
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Source: CoreLogic Home Value Index, October 2020
In Adelaide, Hobart, Darwin and Canberra, dwelling values increased by 1% or more. Even Sydney experienced a small uptick of 0.1%.
While Melbourne experienced a 0.2% decline, it is the smallest drop in values since the COVID-19 downturn in April 2020.