COVID-19 Property Market Update: Where Are Prices Falling? 

personOtto Dargan access_timeJuly 6, 2020

The impact of COVID-19 on the housing market is milder than anticipated. 

Home values are not crashing and there is a recovery in transactional activity since sales plummeted in April 2020.  

Australia’s property market experienced its second consecutive monthly fall, bringing the national index to 0.7% and the home value to $554,741. 

CoreLogic Home Value Index as at 30 June 2020

Source: CoreLogic Hedonic Home Value Index Results

While the decline in property prices might seem worrying, Tim Lawless, Head of Research at CoreLogic, points out the downward pressure is mild due to the following reasons: 

The repayment holidays and low interest rates have kept distressed sales from the market. 

What are the signs of green shoots? 

There are housing market indicators that show Australia’s property market is showing signs of green shoots: 

  • There is an increase in real estate agent activity. The comparative market analysis (CMA) report generated by CoreLogic is tracking 6% higher than June 2019. CMA activity is correlated with new listings activity. 
  • There is a 42% increase in real estate listings compared to the recent low numbers of May 2020.
  • As auction bans are lifted in late May 2020, withdrawal rates are tracking at around 10%, since it peaked at 56% in April 2020. The auction market is showing signs of recovery. 
  • There is an improvement in consumer sentiment. The Westpac/MI consumer sentiment improved by 6.4% in June 2020. 
  • Home values are insulated due to a scarcity of advertised supply. CoreLogic estimates that sales to listing ratio are around 1.3 i.e. for every additional new listing added to the market, there are 1.3 sales. 

What’s happening to the rental market? 

The rental market is still suffering from a decline in rental rates, with weaker conditions in the unit market. 

Sydney’s rental yield fell to a record low of 2.92% in June 2020, and there has been a 40% increase in rental listings over the recent months. 

According to Lawless, “This indicates a surge in available rentals at a time when demand has significantly diminished. Foreign students simply haven’t arrived, domestic students are studying from home and overseas migration has stalled. Compounding weak rental demand is the fact that the hardest hit industry sectors for job losses and under-employment are those that are typically aligned with renters rather than home owners.” 

Hobart’s rent market is taking the worst hit, with rents for houses and units declining by 2% and 3.7% respectively. 

According to Lawless, Hobart’s period of rental decline comes after a 5 year period of rental appreciation, There was a transition from permanent rentals to short term and casual rentals like Airbnb. 

Due to the pandemic, there was no demand for short term rentals and an oversupply of stock. 

Conversely, the rental market in Adelaide and Perth is experiencing strong conditions. 

The rental supply in these capital cities was stabilised due to low levels of investor participation and marginal investment grade construction during recent years. 

Tim Lawless notes that Australia’s rental market is very fragmented. The weakest conditions are seen around inner city apartments. 

Where are prices falling? 

Sydney and Melbourne’s high end or top quartile is experiencing the largest downturn. 

As Lawless notes, “Higher value markets tend to be more reactive to changes in the environment, having led both the upswing and the downturn over the previous cycles.” 

In the past three months, the upper quartile values were down by 1.7% across the combined capital city, while the lower quartile values only dropped by 0.3%. 

Sydney’s upper quartile market was down 1.3% over the recent three months while its lower quartile values were up 0.2%. In Melbourne, the upper quartile values were down 3.7% while the lower quartile was down by 0.5%. 

Why is Melbourne underperforming?

Melbourne’s higher-end market was experiencing a strong upswing and is now showing the largest falls due to COVID-19.

Research suggests that in property markets where incomes are higher, there is more household debt, and investor activity might be sensitive to changes in economic conditions.

  • According to data provided by the Australian Bureau of Statistics (ABS), Victoria experienced the largest decline with a 7.6% decline in payroll jobs between 14 March to 13 June 2020. 

Change in payroll jobs between 14 March and 13 June 2020

Fig: Percentage changes in payroll jobs by States and Territories

  • Melbourne’s housing market has been overexposed to demand from net overseas migration. Over 2018-19, it had the highest level of net overseas migration, which accounted for 38.2% of the country’s net overseas migration.
  • Victoria is experiencing a second wave of COVID-19 cases, which affects the economy and housing market.

If businesses and households prolong social distancing, Melbourne’s housing market might experience higher auction withdrawal rates, less open houses and property inspections. 

What is the outlook on the property market? 

With the easing of restrictions along with low stock levels, repayment holidays and government stimulus packages, the property market has been insulated from large price drops. 

However, the long term effects have to be considered. 

  • The rise of COVID-19 cases in Victoria is a reminder that a second wave of the pandemic might happen. 
  • The repayment pause and JobKeeper and JobSeeker payments have reduced the number of distressed sales. If the policies are withdrawn, then there could be an increase in distressed selling. 

Buying a property during the pandemic is still a possibility. Whether you’re buying a home or an investment property, our mortgage brokers are here to help you find the right lender. 

Please call us at 1300 889 743 or fill in our free assessment form.

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