April housing outlook

By Cameron Kusher, Executive Manager – Economic Research at REA Group
April 2020

Price growth showed evidence of slowing in March 2020, although prices continued to rise. However, the trajectory of the market is likely to shift over the coming months as COVID-19 restrictions set in. Transacting property has become more difficult in the face of COVID-19, although agents are adapting by using virtual inspections. Some are pushing forward with online auctions or using other methods of sale. Despite the real estate sector remaining open for business, the reality is we are likely to see a fall in transactions over the coming months, which may also lead to price falls despite the stimulus of the lowest ever mortgage rates in place. The main reason for an expected slowing is the evaporation of consumer confidence that has occurred over the past month. While it may not continue to evaporate, consumer anxiety is high and likely to remain that way for some time. Given a property purchase is such a high-value commitment, I would expect that for the time being fewer people will be comfortable enough to make such decisions.

Market activity

Throughout recent weeks, the number of people actively searching for property has eased from its record-high levels; however, search activity is higher than it was at the same time last year. At the end of March, both new and total listings had increased compared to February 2020. While the trend was towards a greater number of property listings, new and total listings remained substantially lower than they were a year ago.

The next few months will be interesting to follow. I would expect there will be fewer new listings coming to the market, and we are likely to see older, existing listings also being removed from sale. While listings are falling, potentially we could see an uplift in search activity. A lift in searches will be difficult to disseminate because as people are in their homes and unable to travel, they may start to look at properties, some as a pastime and others with the intent to purchase in the future, and of course some with the intention of purchasing immediately. The point is, any lift in search activity is unlikely to immediately translate into an increase in purchase activity due to the impact of COVID-19. But once the pandemic has passed, buyers are likely to return to the market having had plenty of time to research and understand exactly the type of property they want.

COVID-19

The world has changed so much in the space of just a month. COVID-19 has shifted in a short period of time from something to watch, to a pandemic that has most people working from home and extreme restrictions on what we can and can’t do. For the residential property market it is still in operation but is now greatly changed, with open homes and onsite auctions banned.

Over the past month, we have seen the Reserve Bank cut interest rates by 25 basis points at their scheduled board meeting and then announce a further 25 basis-point cut at an emergency board meeting in the middle of March. As a result, the cash rate is now sitting at a historic low of 0.25% and the Reserve Bank has also started purchasing government bonds in the secondary market and extending liquidity to lenders. We have also seen three separate stimulus packages announced by the federal government, and lenders offering support by reducing interest rates and offering mortgage repayment holidays for those in need. The level of stimulus has been unprecedented and reflects the impact of the pandemic, which has essentially stopped the ability of people to go about their everyday lives.

From a housing market perspective, there has been very little stimulus; it has really been all about supporting individuals and keeping businesses afloat. Lower mortgage rates clearly help those with a mortgage and the government has announced a moratorium on rental evictions, with more details of how that will work to come.

Outlook

Over the coming months, the direction of the property market is likely to change. While transaction activity and prices were rising, it is now likely the impact of COVID-19 will initially see the number of property transactions taking place decline. As transactions decline, it is likely that prices will also begin to fall; however, any decline in prices is likely to occur at a steady pace rather than the rapid declines seen on the share market, for example. Housing has a distinct advantage in that it is not a liquid asset so it is more difficult to trade, and I expect the most likely outcome is that trading of properties (buying and selling) will slow substantially.

The clear message out of COVID-19 is that people are nervous. They are worried about the health of their family and they are worried about their jobs. Some of the packages that have been put in place attempt to allay those fears, but consumer anxiety remains heightened and is likely to remain so for some time. Given property purchase is a high-value commitment, it typically requires high levels of confidence from the purchaser, particularly around health and job security. With confidence currently low, it is likely that demand for and the supply of housing will fall over the coming months.

The positive for housing is that interest rates are at historic low levels and people have a lot of time now to research what type of property they may want to purchase next. Furthermore, the more time they spend in their home, the more problems they are likely to find with those homes. This potentially leads to families wanting to move to more appropriate housing or wanting to undertake renovations. I firmly believe that once the country gets back to some level of normalcy, the housing market is one of the sectors best placed for a rapid rebound in demand.

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