Time nears to set aside Monopoly money

Sir Isaac Newton invented calculus during the plague in 1665. A German company answering a need during World War I was the first to mass produce “tea bombs”, or tea bags as we tend to refer to them today. The Great Depression spawned board games such as Monopoly, to allow people to stay home and be entertained on the cheap.

For those enduring COVID-19 and looking beyond the Monopoly board for their first property purchase, times of hardship can represent a period of opportunity.

With the property market expected to decline as the pandemic drives up unemployment, first-home buyers with job security may find themselves able to gain a foothold on a market that had been floating out of reach.

John Lindeman, CEO of Lindeman Reports, said the current crisis may amount to “a once in a lifetime opportunity to buy their own home at the most affordable prices ever.”

“The areas and types of properties most likely to fall in price will be high density units in the CBDs and inner urban precincts of our major capital cities, where owners of empty short-term rental properties are being forced to sell,” he said.

“There will be opportunities to buy properties in such areas at prices that in all likelihood will never be seen again.”

The drop in property values has so far been limited compared to the sharp drop in agent activity and listing volumes nationwide. In the 28 days ending 19 April, new listing volumes were down 29 per cent on the same period last year.

The RBA has announced Australia is facing the worst economic contraction since the 1930s, suggesting by June 2020 we will experience a 10 per cent fall in national economic output, 20 per cent fall in total hours worked and an unemployment rate of 10 per cent.

These decreases in household income will likely increase housing debt. This will be off the back of a record high debt-to-income ratio of 142 per cent in December 2019.

So, in the short term it is predicted property values, listing volume and agent activity will likely continue to decline.

Ready, aim…

Julie Kelley, Global Sales Manager at aussieproperty.com, said first-home buyers should be preparing to make a move but not necessarily rushing or expecting miracles.

“In the long term, we know some households are accumulating unpaid interest capitalised on their loan and at some point interest rates will begin to rise,” Ms Kelley said.

“What we don’t know is if there will be any measures taken by the Government, RBA or banks as we enter this next phase, but it is predicted housing prices may fall.”

If prices were to slide to within reach of those priced out of the market, COVID-19 would represent a chance to start the process of looking, educating themselves to identify bargains, and positioning themselves to act quickly.

“Get finance pre-approval and keep up-to-date with the changing landscape, including state and government announcements that may affect the property market,” Ms Kelley said.

“Take advantage of record low interest rates and trust that the market will recover in the long term.”

Ms Kelley added that in waiting they may soon be competing against foreign investors, who will inevitably return to the market.

Some buyers may be deterred by falling rents in precincts popular among first-home buyers, including those offering short term rental accommodation for businesspeople, students, and for those working in hospitality, accommodation and tourism, where rental demand has collapsed.

More affordable rent can be attractive, but Mr Lindeman said the situation should be viewed as temporary.

“Once the crisis is behind us rents can be expected to rise, as the supply of new properties has virtually come to a stop and rental demand from overseas arrivals will grow when our borders are open again,” he said.

Fire

With less competition from buyers, those with the capacity and confidence to act could find themselves in the driving seat, according to Dwight Stuchbery, Project Manager at Griffin Group.

“With fewer buyers and diminished listings, a good portion of properties on the market will have an element of vendor urgency,” he said.

“Complementing this are the current state-by-state government incentives for first-home buyers that are likely to remain in place, along with record low interest rates that won’t be moving upwards in the foreseeable future.

Highly desirable properties located in high demand suburbs with great infrastructure are less likely to drop in price as quickly as others, according to Ms Kelley.

“There are opportunities for first-home buyers to snap up bargains in outer suburbs where established home prices are already feeling the effects of COVID-19.

“High density city apartments that have been rented for short-stay or student accommodation may also represent great value, as landlords exit their investments due to the uncertainty of the rental market.

“And there has been an increase developers offering very attractive buyer incentives on newly-completed and off-the-plan projects, such as purchase price discounts, rebates at settlement, internal upgrades and rental guarantees.”

Rolling the dice

Australia’s property market has been forecast to soften by up to 10 per cent before rebounding strongly once all coronavirus restrictions are lifted.

In Melbourne ANZ has predicted property price falls of 9 per cent, while CBA has suggested an 11 per cent drop is likely.

In Sydney, data compiled by My Housing Market found suburbs in the Canterbury-Bankstown area, Sydney's north west and south have all had significant falls in asking prices and a rise in the number of homes for sale.

In Canterbury-Bankstown the median asking price had fallen 5.2 per cent in the past month to $970,000 and listings had risen by 4.5 per cent.

For first-home buyers tired of playing with Monopoly money, the time to strike may well be near.

“The best time to buy will be when the current restrictions on movement, assembly and travel have been eased,” Mr Lindeman said.

“There will be a backlog of potential vendors keen to finally sell their properties, and so the number of listings will rise before the demand starts to lift again.

“This is when prices will be at their lowest, after which they will rise strongly as the economy recovers again.”