July housing outlook
By Cameron Kusher, Executive Manager – Economic Research at REA Group
While there is evidence of minor price falls in the current market, there is little evidence to suggest that the housing market will see significant price falls due to the impact of COVID-19. The immediate impacts of COVID-19 were much more around a reduction in new properties being listed for sale and fewer transactions as lockdowns commenced and confidence slumped. Since the lockdowns ended, we have seen vendors more willing to list properties. With new listings climbing and purchasers more willing to transact, weekly data on sales is showing some sharp increases.
Although all states have now been out of lockdown throughout June, the reintroduction of stage 3 lockdowns in Melbourne and some surrounding areas really throws a spanner into the works of the broader national recovery and we will be monitoring key metrics like sales, auction clearance rates, search volumes and listings to determine the impact. It is reasonable to expect that we will see all these metrics soften over the coming weeks in Victoria.
More broadly at a national level, the data has been quite positive through June. New for-sale listings have been climbing, enquiries for both existing and development products have increased, search volumes remain high, time on site is fairly steady, the number of properties sold has been increasing and auction clearance rates have been steady.
Consumer confidence had been steadily increasing; however, confidence has eased over recent weeks and is likely to fall further due to the Melbourne lockdown. This is likely to have repercussions for the property market, reducing buyers’ and sellers’ preparedness to sell.
While a lot of the indicators for residential property look quite positive, it’s important to keep in mind that we are amid a global pandemic and the first Australian recession in almost three decades.
The national unemployment rate increased to 7.1 per cent in May, the highest it has been since October 2001, and at the same time hours worked has fallen more than 10 per cent over the past two months and employment participation has collapsed. JobKeeper has undoubtedly kept the unemployment rate from rising further as has the collapse in employment participation; without said collapse, the unemployment rate would have been above 11 per cent.
With international borders shut for the foreseeable future, population growth, which was already slowing, is likely to slow dramatically given the collapse in overseas migration.
Dwelling approvals, which were already falling prior to COVID-19, have seen a rapid acceleration in the falls, largely in the unit sector. Note that HomeBuilder should help arrest the slide in new house approvals but is unlikely to significantly help unit approvals.
Finally, official interest rates have been cut to their lowest ever level (0.25%) with the Reserve Bank repeatedly stating that they won’t increase rates until they are progressing towards full employment and it is confident that inflation will be sustainably within the 2 to 3 per cent target band. Note that neither of those two benchmarks were being achieved prior to the current pandemic, so it could be several years until rates are increased.
Despite these potential challenges, people are maintaining a strong interest in property with realestate.com.au recording a record unique audience in June 2020.
Over the past month, the number of people searching for properties for sale on realestate.com.au has remained close to its historic highs; however, it has started to fall slightly over recent weeks. Despite the recent declines, the volume of searches remains much higher than it was a year ago and indicates many people are still monitoring the Australian property market very closely.
There is also a close to record-high number of searches by high-intent buyers suggesting there is a large volume of people close to making a purchase decision.
The number of new properties listed for sale on realestate.com.au has increased in June and was higher than it was in June of last year. Despite the rebound in new listings, they remain well below levels recorded before the initial COVID-19 lockdowns.
Transaction volumes have also lifted, with the number of properties being moved from for sale to sold sections of reealestate.com.au now much higher than it was at the same time last year and back to levels similar to those before the COVID-19 lockdown.
Impact of HomeBuilder
Although the federal government’s HomeBuilder package was only announced on 4 June 2020, the data already shows a very positive response to its announcement amongst developers while it remains unclear as to its impact on knock-down-rebuilds and major renovations.
The volume of enquiry for new homes was already climbing in May before HomeBuilder’s announcement, up 53.9 per cent compared to April; however, in June enquiry lifted by another 62.8 per cent.
The monthly increase in enquiry was more pronounced for land estates (93.0%) than it was for apartments (29.4%) but it was a substantial monthly increase for both.
While interest in purchasing a new home was already climbing prior to HomeBuilder it is safe to say the data suggests there has been an almost immediate response by the market to the announcement.
I would expect that the scheme, which is available until the end of 2020, will result in a heightened volume of enquiry to developers and builders throughout the remainder of the year.
The challenge will come in 2021, given many first home buyers are likely to have brought forward their purchase decision and, assuming international borders remain closed, there remains significantly reduced demand from overseas buyers and less demand from investors.
There are a lot of policies in place to support the housing market through COVID-19. HomeBuilder was announced in June, mortgage rates are the lowest they’ve ever been, and banks initially offered six-month repayment holidays – and they are now extending them for a further four months in certain situations.
The data we are seeing around searches, enquiry, days on site and new listings is all quite positive, and not just positive in the context of being amid a recession.
Over the coming month, the broader economic recovery will be challenged by the fact that Melbourne is heading back into lockdown and there remains the possibility of outbreaks elsewhere around the country. From a property market perspective, Melbourne lockdowns are likely to have an impact; however, it should be largely contained locally.
The property sector as a whole is benefitting from significant stimulus and it is helping to support the rebound in demand and transactions. The combination of the momentum it enjoyed going into COVID-19 and the stimulus of historic low interest rates which are expected to remain at these lows for several years, should help the market regain momentum coming out. The main challenge to the recovery at this point will be how quickly the economy can repair and what will occur as economic support is gradually removed. Luckily, it sounds like the approach taken will be a pragmatic one.
Home owners who are unsure about the state of the market or their finances should be speaking to their mortgage advisors about the best way to manage through COVID-19, whether that be applying for a mortgage holiday if they lose their job or have hours reduced, or if there are better mortgage rates available to them.
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