Prices steady but markets still shielded from COVID fallout

Australian property markets continue to defy forecasts of significant price plunges, but capital growth is not likely to return until next year at the absolute earliest, as the economy continues to adjust to a post-COVID-19 reality.

CoreLogic Australian head of research Eliza Owen told a recent panel discussion hosted by Stone & Chalk and the Proptech Association of Australia that she expected the first instances of price growth to occur early next year, with falls in value likely for the rest of 2020.

Ms Owen said with the official cash rate at historical lows and not likely to be cut further, property markets would need to rely on other catalysts for growth.

“A reduction in the cash rate typically sees an increase in property prices, it hasn’t quite had that effect this time but has kept price declines less severe,” Ms Owens said.

“What I think is going to happen is we will continue to see a decline in prices throughout 2020 and I would expect values to start picking up again once employment figures start to rebound. 

“The reason for that, I think personally, is because we can’t rely on cash rate reductions any further and the governor of the RBA has made it pretty clear that they’re not going any lower with that target, it’s going to come back to income for purchasing capacity.

“I would expect to see after Q1 of 2021 a recovery in property prices as we see more jobs taken up and income recovery.”

Ms Owen said the impacts of COVID-19 on property markets in general had been a mild fall in prices, but a more significant drop in transactional and listing activity.

Sales volumes plunged 33 per cent in April, as compared to March, as buyers and sellers alike retreated from the market due to the unprecedented uncertainty of the pandemic.

Ms Owen said while transactions were starting to bounce back, listings remained low as compared to previous years.

“Listings volumes are down a fair bit from where they were at this time last year, and that’s kind of a good sign in a way because it suggests that not a lot of people are selling right now because not a lot of people have to sell,” Ms Owen said.

“That’s really been helped by banks offering a holiday on mortgage repayments.”

Ms Owen said sellers that had returned properties to the market in May had been outweighed by the number of active buyers, with sales outnumbering new listings, resulting in a fall in the total number of properties available for sale.

“That means that the stock levels are remaining pretty tight and that’s keeping some stability in prices,” she said.

“In the past month we can see that the combined capital cities markets have seen price declines, but only by about half a per cent in the past month.

“It’s been more severe across Melbourne, where we have seen a 1 per cent decline in property values over the past month, and a 1.5 per cent decline over the past two months, but overall the impact has been pretty mild and I think that comes back to a lack of distressed sales and a lack of an influx of stock coming onto the market because of mortgage holiday policies.”

Ms Owen’s predictions for price growth, which she qualified by saying she does not have a “crystal ball”, are more optimistic than many forecasts from other industry analysts.

National Australia Bank is predicting home values in Australian capital cities to fall between 10 and 15 per cent over the rest of the year, as unemployment is expected to peak at 8.4 per cent.

Independent analyst M3 Property was similarly pessimistic, taking the view that house price data to date has not shown the true impact of the COVID-19 crisis because of record low interest rates and the willingness of Australian banks to provide mortgage relief.

“However, once mortgage breaks end and employment impacts are known, dwellings may start to be offered to the market at discounted prices, negatively impacting prices,” M3 Property’s Luana Kenny said in a recent report.

“The length of the crisis is going to determine the depth of the downturn.”

Ms Kenny said supply levels would also have a large part to play in a market recovery, with M3’s forecasts showing demand is not expected to exceed supply in most states until the 2023 financial year.

Only South Australia (FY2020) and Victoria (FY2021), have been tipped to have markets in undersupply prior to FY2023.

“Demand is likely to be weak in FY2021 due to economic uncertainty resulting in many people putting investment and purchasing decisions on hold,” Ms Kenny said.

“The residential property market will be impacted by COVID-19 for the balance of 2020 and the first half of 2021. 

“During this time, we anticipate residential prices will decrease, with a recovery not occurring until the latter half of 2021.

“This recovery will be impacted by the high level of unemployment, however, in part will be offset by improving population growth.

“Once market confidence is restored, we anticipate slow recovery.

“Growth is not expected until mid to late 2022 and is forecast to accelerate in FY2023.”