Property Market Post Pandemic

While it is too early to see the long term impact of recent events on the property market, the immediate impact is now starting to be reported and provides some insight into the future.

Experts are generally in consensus that the initial impact of the pandemic is not as dire as first expected and the property market decline is nowhere near the steepness caused by other historical events.

Sale Volumes

The immediate impact on the property market came about because of the introduction of social distancing guidelines and the consequent cancelling of many open home inspections, almost eliminating the ability to transact property sales. In the majority of instances real estate agents adjusted quickly to the restrictions by introducing digital inspections and on-line auctions. On-site auctions and property inspections were initially recommenced in New South Wales and Victoria in May (albeit subsequently impacted).

It is hard to determine what proportion of the decline was due to health concerns and social distancing guidelines versus a decline in consumer sentiment having regard to the consequent economic impacts.

Sales Values

The sharp decline in housing transactions has not translated into a significant decline in housing prices.

June 2020 saw a decline in CoreLogic’s national home value index by 0.7%, the second decline following the 0.4% drop in May. These declines are significantly below initial forecasts by many experts and could offer some hope that this time it will not be as deep as the previous fall.

It is important to consider these movements in the context of the lead up. According to CoreLogic, the housing market in Australia experienced a downturn from the middle of 2017 through to about the middle of 2019, falling by about 10%.

From mid 2019 through to the end of 2019 and into early 2020, the index did well by recovering close to the same level seen in mid 2017.

The lack of a significant decline shows that there are parts of the market that continue to display confidence. This will very much be dependent on the duration of the economic downturn, the extent of on-going government support and the resulting consumer confidence.

We also need to remind ourselves that this extremely mild decline may not be indicative of the health of the property market in the future.

Rental Market

With the loss of jobs, many tenants are either finding alternate accommodation, moving back to their parents or looking to reduce their rents. The fall in numbers of international students has driven dedicated accommodation providers to look for alternate tenants. Similarly, accommodation previously dedicated to short term use, for example Airbnb, is now seeking long term tenants.

All of these scenarios have led to an increase in supply and a decrease in demand with the consequential impact being declining rental rates and rental returns.

The saving grace here is that reductions in interest rates have partially offset a decline in rental income.

Market Activity

These circumstances have led to a decline in the number of investors, with owner occupiers now being the predominant segment within the market.

Within the owner occupiers, first home buyers are estimated to represent up to around a third of owner home loan demand. This has been driven by several government incentives currently put in place by federal and state governments.

Home upgraders catering for growing families are also strongly represented. These families already have a foothold in the property market and, provided they are selling and buying in the same market, the market conditions are less relevant.