Forecasts turning murky as lockdowns begin to bite

One of Australia’s biggest banks says the nation’s property markets are heading into a period of heightened uncertainty and unpredictability, as Melbourne’s lockdown begins to take a bite out of buyer activity.

Big four bank Westpac this week released its monthly Housing Pulse report, which described current conditions in Australian housing markets as “very tricky territory”, with virus-related lockdowns combining with an extraordinary price boom that is starting to be slowed by affordability constraints.

“On balance, we expect the situation to see a temporary loss of momentum rather than a correction - even in the most heavily impacted areas - and a rapid snap-back once restrictions ease,” Westpac’s economists said.

“Thin trading means some sub-markets will be susceptible to weakness near term, particularly where economic pressures are intense and the virus outlook uncertain.

“However, thin trading also means low ‘on-market’ supply that could be a big issue once activity rebounds, especially given the way demand has already been running well ahead of new listings.”

Muddying up the forecasts for housing markets across the country is volatility in consumer sentiment, with deteriorating affordability driving a sharp decline in the number of people who think now is a good time to buy, price expectations remaining high and COVID shocks impacting confidence around jobs.

The Westpac-Melbourne Institute ‘time to buy a dwelling’ index fell by 14.1 per cent in the three months to August, following a similar decline in the previous three months, to reach its second-lowest trough since 2010.

At the same time, sellers' price expectations remain elevated, with Westpac’s consumer house price expectations index sticking at near historic highs.

Risk aversion also remains elevated as consumers registered a sharp loss of confidence around jobs, with the bank's unemployment expectations index jumping 24.3 per cent in the three months to August, reflecting that respondents are expecting the number of jobless to rise.

“The combined signal remains positive for now, but looks susceptible to slowing,” Westpac said.

Westpac’s forecasts come as CoreLogic data showed a big number of auction withdrawals in Melbourne over the weekend, contributing to the biggest capital city clearance rate drop since July last year.

While there were 1,179 auctions scheduled in Melbourne for the weekend, 1,067 went ahead.

However, of the 792 results collated to date by CoreLogic, 49.9 per cent were withdrawn, driving down Melbourne’s clearance rate to 48.6 per cent.

Sydney, by contrast, recorded a clearance rate of 81.7 per cent across 529 properties, with just 1.1 per cent of auctions postponed until a later date.

“Clearly we are seeing a remarkably different outcome in auction results across Australia’s two largest auction markets, which can be explained by the fact that properties can still be physically inspected in Sydney (although a private inspection is limited to one person at a time), but not in Melbourne,” CoreLogic said.

“The divergence in the auction clearance rate tells the story about how important it is for prospective buyers to be able to physically inspect a property in order to make such a high commitment decision as buying a home.”