The impact of coronavirus is starting to trickle through to house prices, but it is early days yet with price rises across most capital cities still driving national dwelling prices up 0.7 per cent last month.
- The March reading on national house prices was the lowest monthly gain since the market lifted in July last year, property data analysts say
- A substantial drop in listings activity is expected over coming weeks as social distancing measures stay in force
- Premium value properties led the pace of capital gains through the quarter, but this segment of the market also appears to have the most rapid deceleration in growth rate
The bad news for those who own a home or investment property is the March reading was the lowest monthly gain since the market lifted in July last year, property data analysts CoreLogic said.
But this weakening in the growth trend in the second half of the month, as consumer confidence slumped and social distancing policies took hold, is expected to worsen.
CoreLogic head of research Tim Lawless said a period of “unprecedented uncertainty” could drag Australia’s economy into a recession for the first time in almost 30 years, which would see activity, and eventually house prices, plunge.
He said the global financial crisis was short and sharp, but coronavirus had already hurt consumer confidence more than it had during the 2008 crisis, and its overall impact could be more damaging.
“It’s the sheer uncertainty of a health-related crisis, rather than an economic one, or a financial catalyst, that’s the big difference here,” he said.
“There’s a lot more uncertainty, particularly when you’re seeing several parts of the economy shutting down for an extended period of time.”
One economist, AMP’s Shane Oliver has already forecast the unemployment rate could double to 10 per cent or more, and that could dent national house prices by 20 per cent.
Mr Lawless said that was a possibility.
“It does seem extreme at the moment, but the wildcard here is we don’t know how long this shutdown will last,” Mr Lawless said.
“We don’t know how long the economy is going to be in hibernation.”
|Monthly rise all dwellings||Annual rise all dwellings||Home median price|
Mr Lawless said the Federal Government’s $130 billion stimulus announced this week to protect jobs, while welcome, would still not prevent the unemployment rate surging.
Mr Lawless also noted a substantial reduction in listing activity ahead.
About 40 per cent of the country’s real estate auctions were withdrawn over the weekend as stricter social-distancing rules introduced by the Federal Government last week — including a ban on auction gatherings and open homes — forced agents to instead undertake online auctions and private sales mostly negotiated by phone.
Mr Lawless said real estate agent reports generated across CoreLogic platforms, used by about 70 per cent of real estate agents for their research and pre-listing reports, have more than halved over recent weeks.
This implied a substantial drop in listings activity over coming weeks.
“Similarly, recent polling of real estate agency enquiry levels indicated that more than 60 per cent of Australian real estate agents have seen buyer and seller enquiries fall by more than 50 per cent over recent weeks, with the larger majority expecting a further drop in enquiry over coming weeks,” he said.
House prices rise in every city except Hobart
Over the month, housing values rose across every capital city apart from Hobart, which declined 0.2 per cent.
Over the March quarter, every capital city recorded a rise in housing values.
Sydney had the highest growth over the quarter with values up 3.9 per cent, followed by Melbourne at 2.9 per cent and Canberra at 1.7 per cent.
But some of the best performing capital city sub-regions recorded a month-on-month decline.
Melbourne’s inner east, where values were previously rising rapidly, recorded a 0.2 per cent drop over the month.
Dwelling values across Melbourne’s inner south and the Sutherland region of Sydney also edged lower over the month, along with the Brisbane sub-regions of Ipswich and Logan/Beaudesert.
Nationally, the lowest capital city quarterly gain was in Darwin and Adelaide, each increasing 0.6 per cent, and a similar story occurred across the regional areas of each state, with values higher over the month and quarter.
However, Mr Lawless noted that recent trends in the market would become irrelevant as coronavirus continued to affect people’s jobs and dent household confidence.
He said bans on open homes and on-site auctions would compound the slowdown in buyer activity, as would any future policy announcements restricting services such as building and pest inspections, conveyancing and furniture removals.
But he said the crisis was temporary, and along with hundreds of billions of dollars of government stimulus, leniency from lenders for distressed borrowers and record low interest rates, house prices would eventually rebound again. It would all depend on the duration of the crisis, he said.
“We’ve seen total stimulus measures now getting close to 16 per cent of GDP … so it is an enormous amount of capital flowing into the market.”
“With interest rates as low as they are for at least the next three years, that should help support the market as we see the economy improving — whenever that is.”
Premium properties to take a hit
Premium value properties led the pace of capital gains through the quarter, but this segment of the market also appears to have the most rapid deceleration in growth rate.
At the high end of the market, the quarterly growth rate fell from 6.6 per cent over the December 2019 quarter, to 3.6 per cent over the March 2020 quarter.
Mr Lawless said the recent deceleration in the growth rate of this segment could be a signal that growth would start to slow more broadly in the coming months.
“The coronavirus impact is likely to be broad-based across the different value segments of the property market,” he said.
“A large proportion of jobs losses have been in lower-paid sectors, such as hospitality, travel or tourism. However, equity values have also been hard hit, which could contribute to weaker demand across the higher value segments of the market.”
He said rental pressures had remained modest across most areas of Australia, with the national rental index up 0.3 per cent over the month and 1.2 per cent higher over the March quarter, but expected downwards pressure on rents going forward.
Economists fear indebted households are more at risk during a recession. Australia’s total debt to household income is at a record high of 186.5 per cent.
“No doubt there is a rising level of downside risk to housing values, which is compounded by the fragile state of household balance sheets, which on average, are heavily leveraged,” Mr Lawless said.
CommSec senior economist Ryan Felsman said the housing market was in good shape until the coronavirus disruptions began to take their toll on home prices from mid-March.
He said house prices were up 9.1 per cent on a year ago and prices of apartments had increased by 8.3 per cent — the strongest annual growth rate in over four years.
“The housing market has been a bright spot for the Aussie economy,” he said.
“But with the onset of coronavirus pandemic and the restrictive measures put in place to try and contain the virus, budding Aussie property buyers have become increasingly cautious about upgrading or purchasing their first new home.”
On Wednesday the ABS also released its February building approval figures. These were stronger than expected with total dwellings rebounding off the fall in January in seasonally adjusted terms.
“Up 20 per cent on the previous month, this was the largest month on month gain since 2013,” BIS Oxford economist Maree Kilroy said.
“All of the growth came from attached dwellings, with high-density approvals in Victoria once again surpassing expectation.”
But houses softened 2 per cent, despite New South Wales and Queensland recording monthly growth.
“The COVID-19 pandemic is expected to cause a second leg down in the residential construction downturn,” she said.
“Extreme economic anxiety and the banning of public auctions and open house inspections will see the demand for new dwellings take a big hit over the remainder of 2020.”
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Topics: business-economics-and-finance, housing-industry, housing, house-and-home, money-and-monetary-policy, regulation, markets, federal-government, diseases-and-disorders, disease-control-methods, australia
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