May housing outlook
By Cameron Kusher, Executive Manager – Economic Research at REA Group
Despite the ongoing impact of COVID-19 throughout April 2020, property prices continued to move slightly higher. It should be noted that while prices continued to increase, the rate of increase slowed dramatically, indicating the momentum that was apparent late in 2019 and early in 2020 is coming out of the market and I wouldn’t be surprised to see some falls over the coming months.
At the time of writing, several states have started to allow property inspections and onsite auctions to recommence. It is assumed this will be positive for the housing market; however, it is unlikely this will lead to a rapid improvement in housing conditions because consumer confidence remains so fragile and unemployment is increasing.
As a result of the fragile consumer confidence, a significant reduction in the number of new properties being listed for sale has been experienced since COVID-19 related lockdowns commenced. Given this, I would expect that the number of property transactions will fall significantly over the coming months and that may drag prices moderately lower too.
The evaporation of consumer confidence and the increase in unemployment is going to be the biggest driver of any housing market downturn and the eventual recovery. Because housing is such a high-commitment decision, purchasers want to have a high level of confidence, and stable employment is obviously a major contributor to confidence. The quicker the expected spike in unemployment can start falling and the sooner confidence shows meaningful improvement, the more positive this will be for the housing market. In the meantime, it is expected that most buyers and sellers will be reluctant to undertake property transactions. However, this will not stop them considering their next transaction in the meantime.
Search activity for both properties for sale and rent has been trending higher over the past five weeks after a rapid slowdown as COVID-19 related lockdowns commenced. The volume of search activity on a weekly basis is now much higher than it was a year ago and has also recovered to levels above those recorded prior to the COVID-19 pandemic hitting Australia.
While an increasingly large number of people are looking at properties, the number of new properties being listed on realestate.com.au has trended significantly lower. This reflects the evaporation of overall consumer confidence and the shutdown of open homes and auctions, which has driven vendors to be cautious about selling their homes in this environment.
The strong volume of people visiting realestate.com.au and engaging with properties for sale highlights that interest in Australian property remains high. What remains unclear is how serious these buyers are, and when they will be ready to transact. It is unlikely the search activity will translate immediately into transactions; however, as confidence improves there may be a large volume of buyers and sellers ready to transact.
The world has changed so much in the space of a few months. COVID-19 has shifted in a short period of time to something to watch, to a pandemic that has most people working from home and extreme restrictions on what we can and cannot do. For the residential property market, it is still in operation, but the magnitude of operation varies greatly state to state. Encouragingly, the success Australia has had with containing COVID-19 is now seeing some states and territories allowing in-person inspections and on-site auctions to return, which can only be positive for the market.
Official interest rates remain at historic lows with little prospect of changes in the foreseeable future. The Reserve Bank (RBA) hasset a target rate for the three-year government bond rate of 0.25% and they are successfully achieving that target, so much so that they have already tapered their purchasing activity. Government stimulus and economic support is also in place and many of the payments to employers and those who have lost their jobs have now commenced. Finally, banks are supporting individuals and businesses with repayment holidays and cheap finance. All these measures should minimise the economic damage from COVID-19, noting there is still expected to be a large economic contraction as a result of the pandemic.
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, as do repayment holidays on offer from lenders, and the state governments have announced a moratorium on rental evictions and varying packages for renters and landlords.
Low consumer confidence is leading to fewer new listings and fewer property transactions and even though confidence has improved it remains at recessionary levels. The low level of confidence is likely to continue to discourage a large proportion of people from transacting in the current market.
It’s not all bad news for the property market, though; some states and territories have begun to ease restrictions and are allowing in-person inspections and on-site auctions and we would expect other states and territories to follow suit over the coming weeks. Despite this being a positive development, we still see some caution around transacting property.
Consumer confidence has now improved for five consecutive weeks and hopefully if infection rates remain low and more of the economy begins to open, we will see a continuation of that trend. In the meantime, search activity on realestate.com.au remains heightened and is trending higher weekly, which indicates Australians are maintaining a keen interest in property. With more time at home, Australians will have a lot more time to consider and research their next property purchase or sale.
As the economy opens back up and people return to work, property as a sector would appear to be well placed to rebound. This is due to 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. The main challenge to the recovery will be how quickly confidence repairs, how high the unemployment rate reaches and how quickly it falls thereafter and, once all the economic support is removed, if we see a spike in forced sales.
In the meantime, home owners should be speaking to their mortgage advisers about the best way to manage through COVID-19. Whether that be applying for a mortgage holiday if they lose their job or have their hours reduced, or if there are better mortgage rates available to them.
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