COVID-19 and the Australian Property Market

Under more typical circumstances, the Reserve Bank’s (RBA) decision to institute the second rate cut last month would likely have infused optimism into the Aussie housing market; RBA research has revealed there is an inverse relationship between cash rate changes and property price movements.

However, according to CoreLogic analysis, the current situation of “extreme uncertainty and economic fragility” means housing market activity is unlikely to lift even with the historically low cost of debt.

Consumer confidence, which has been weak for months, is trending lower as the coronavirus pandemic stretches onward, and the possibility of a recession increases. In this context, consumers are wary of making significant financial decisions such as buying or selling a home.

Further, a weakening in labour markets would normally lead to a substantial rise in mortgage arrears and distressed properties entering the market but, in this pandemic, the Australian finance system is offering mortgage payment deferrals – at least in the short-term.

Those positioned to benefit in the coming months are buyers who have the confidence and financial well-being to remain active in the housing market despite the broader context, with significant potential for good buying opportunities at competitive prices and at ultra-low interest rates.

For the foreseeable future, volumes or properties sold and not property values are likely to take a hit from the COVID-19 pandemic. How true this holds depends on how long it takes to not only contain the virus, but for sentiment to recover.

“Although Australia’s housing markets have begun to enter a period of disruption, they are coming from strong foundations,” said CoreLogic head of research Tim Lawless.

“Considering the temporary nature of this crisis, along with unprecedented levels of government stimulus, leniency from lenders for distressed borrowers and record low interest rates, housing values are likely to be more insulated than sales activity,” said Mr Lawless, adding that such uncharted territory made it difficult to predict the immediate future of the real estate market.

“The extent of any fall in housing values is impossible to fathom without first understanding the length of time this health and economic crisis persists. Arguably, the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values,” Mr Lawless said.

In our opinion for those who have a secure job and their finances organised, this is a great time to buy a home or investment property at a price that you were unlikely to be able to get a couple of weeks ago when the property markets in big capital cities were booming and there were more buyers around than sellers.

It is likely that human nature will cause many would-be buyers to sit on the sidelines for a little while until things become clearer, which means that sellers will be more amenable to accepting offers rather than holding out for a top price.