Current Impact on the Housing Market

COVID-19 is having a profound impact on the property market in Australia:

  • In the home ownership market more than 300,000 households have deferred their mortgage payments. Without this option, many would have been forced to sell which would have meant price falls.

  • Sales volumes have dropped 79% in Sydney during March/April, according to figures released by Frontier/UNSW, equating to a loss of $454m compared with the same period last year. In Melbourne, sales volumes were down 84% (a loss of $584m),

  • In the private rental market, many tenants have lost their jobs and have been unable to pay rent while others are reliant on JobKeeper/JobSeeker payments to keep up their payments.

Forecasts for the Housing Market

Housing Industry analyst SQM Research has looked at 3 possible scenarios:

  • A best case where there were zero new COVID-19 cases by the end of April allowing a relaxation of lockdown restrictions by the end of May. In this case housing prices could end 4-7% higher than in December 2019.

  • A middle ground scenario where there is no second wave of infections but ongoing uncertainty amid a failure to completely stem the flow of new cases. This would lead to a prolonged period of stagnation which would ultimately negatively impact the property market

  • A worst case where if a second wave of the virus occurs and restrictions were prolonged, they expect a "major fall" in housing prices – of up to 30% in Melbourne and Sydney.

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Louis Christopher of SQM Research says:

“We’re not saying this is definitely going to happen, it’s more a warning that if we were to see the restrictions with us for the full six months at their current levels, this is what would happen.”

Modelling carried out by Commonwealth Bank found a similar worst case scenario. In their view the outlook is highly uncertain but they are not expecting the market to drop in the short term.

According to ANZ Bank the deterioration in household income will be the biggest driver of weakness. Unemployment will rise to just under 10%, the highest since the early 1990s recession.

“But this does not capture the scale of the loss of income, with households across the income and industry spectrum experiencing cuts to hours and wages. Already, nearly a third of Australian households have reported a deterioration in finances due to the pandemic,” “This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home.”

The first real test for the market will come when mortgage repayments deferrals granted by the banks end in October/November.

Outlook for Rental Properties

The rental market is being affected by a number of trends brought about by the direct impact of COVID-19 and the government’s response:

  • Many tenants have lost their jobs or are experiencing reduced income. Many have reassessed their position, with many younger people moving back home

  • There has been an increase of properties coming on to the market with short term rentals such as Airbnb now being offered as longer term leases

  • Australia’s population has shrunk with the Federal government stating that 300,000 temporary visa holders have left Australia since the start of this year

  • potential vendors withdrawing properties for sale and listing them for rent CoreLogic data show rental listings have risen sharply, particularly in inner Melbourne, by 36% over the month to 26th April, and Sydney by 34%.

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The other factor impacting the rental market is a marked reduction in Australia’s population growth. Net overseas migration currently accounts for around 240,000 people, or nearly two-thirds of Australia’s population growth, and the federal government estimates that Australia’s net overseas migration is set to fall by more than 85% in 2020/21 from 2018/19 levels due to the international travel bans. The impact will most affect Sydney and Melbourne since the bulk of their population growth comes from net overseas migration, at 85% and 68% respectively in the 12 months to June 2019.

There also may be a delayed impact from the spike in unemployment. JobKeeper/JobSeeker payments are only temporary measures and if tenants do not have a source of income when intervention ends it could mean thousands of tenants are unable to pay rent.

The Frontier/UNSW figures, which are derived from publicly available sources such as Domain and realestate.com, describe a similarly picture in the big city rental market. There are reports that inner city rents have dropped at least 10%, and in some areas by as much as 17%, as a price war has developed between landlords desperate to fill their properties.

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Disclaimer: This article is intended to provide general news and information only.  While every care has been taken to ensure the accuracy of the information it contains, neither Loanscape nor its employees can be held liable for any inaccuracies, errors or omission.  All information is current as at publication release and the publisher takes no responsibility for any factors that may change thereafter.  Readers are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.

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