Virus statistics, government policies and economic indicators are changing constantly right now, but one thing seems clear – COVID-19 is affecting almost every sector of our economy. It’s therefore unlikely the property market will be spared, so what does this mean for prospective home buyers?
What is the forecast for property in 2020?
At a national level, property prices showed an increase of 0.7 percent in March across the capital cities.1 However, this was the lowest monthly gain since markets started to bounce back in July last year and may indicate a slowing of price growth.
Social distancing measures have resulted in rising unemployment and a huge drop in consumer confidence. Unemployment is forecast to reach 10 percent during the June quarter2 and the consumer confidence index dropped by 18 percent between March and April.3 While the Prime Minister has indicated restrictions may start to ease in May if certain health and security targets can be met, it’s still unclear what this will mean for businesses. As long as there remains uncertainty around what the rest of 2020 will look like, we are likely to continue to see financial insecurity for many Australians.
In regards to the property market, the pool of potential buyers is then limited to those who are confident about their finances, which could keep a lid on further price gains or even push prices lower in the short term. We have already seen a significant drop in enquiries and listings as many buyers and sellers adopt a ‘wait and see’ approach.4
However, there are a number of reasons why real estate may bounce back more quickly than some other industries once we start to see some more certainty around COVID-19 restrictions and employment.
Firstly, the industry hasn’t been forced into a full shutdown – buying and selling property is still entirely possible. We are simply facing a different way of buying and selling, with buyers doing virtual or private inspections and sales going ahead via online auction or private treaty. We may see buyers and sellers start to return to the market as they become more comfortable with this new approach.
Secondly, with interest rates lower than they have been for many decades, there is a unique opportunity to borrow very cheaply. This should support the housing market by encouraging those who do have financial security to borrow while attractive loan options are on the table.
Finally, listings have been low for well over a year now which means there is a level of pent up demand among prospective buyers. While search activity is down since February this year, it is higher than it was this time last year, showing that buyers are still on the prowl.
Who should and shouldn’t buy property during COVID-19?
If you are at all concerned about losing income as a result of the COVID-19 crisis, now may not be the right time to be taking out a loan as you risk not being able to afford your repayments down the track. Similarly, if you are already highly leveraged, now is a risky time to be going into more debt. No-one can say for sure what the next 12 months will look like, and if a recession takes hold and lasts longer than expected, you don’t want to be in a position where you have to sell your property to pay off your loan.
On the other hand, first home buyers with a secure income or upgraders with a low level of debt may be wise to take advantage of the imminent pause in price rises to secure a property now. Investor activity has slowed, possibly due to the eviction moratorium for renters facing financial hardship, so first home buyers may face less competition. There may also be vendors who, uncertain about the movement of property prices, are willing to let their properties go for less to guarantee the sale. These factors, combined with the incredibly low rates on offer at the moment, mean it could be an opportunity to buy now for borrowers in the right financial position.
How do I buy a property during COVID-19?
The key changes to the usual buying and selling process are:
- There is a ban on open inspections, however buyers can do a virtual tour online to view properties of interest (realestate.com.au has launched a new virtual inspection tool.
- Buyers can also arrange a private inspection. Agents should abide by restrictions such as enforcing social distancing and ‘no touching’ rules and providing hand sanitiser and gloves.
Sellers can arrange to hold an online auction where buyers can register and bid online. They can also make a sale through expressions of interest or by private treaty.
What can mortgage brokers do to help?
If you are considering purchasing a property, talk to your Smartline Adviser before you make any commitments.
We may start to see lenders tighten their credit policies to reduce their risk of loan defaults. For example, certain types of income considered ‘at risk’ due to COVID-19 (such as contract or casual income or income from employment in certain industries) may not be included in serviceability assessments. For investors, lenders may also impose more stringent verification procedures on rental income, which might be difficult to prove.
Your adviser will be able to help you choose the right lender depending on the type of loan you need and your financial circumstances. They will also be able to help you find a loan that won’t leave you in financial hardship later on should your circumstances change.
SOURCES: 1https://www.abc.net.au/news/2020-04-01/national-house-prices-march-coronavirus-property-corelogic/12109434, 2https://www.abc.net.au/news/2020-04-13/coronavirus-unemployment-covid-19-treasury-figures-jobless-rate/12145542, 3https://tradingeconomics.com/australia/consumer-confidence, 4https:///www.realestate.com.au/news/covid-19-what-will-australias-recovery-look-like/