The economic consequences of the coronavirus breakout are likely to be felt for as long, and perhaps even longer than the health crisis itself. As the world tries to come to terms with these consequences while battling Covid-19, Australia has unfortunately also felt the economic brunt of the virus.
Ending the longest uninterrupted economic growth streak in the developed world, Australian treasurer Josh Frydenberg on 3 June announced that the country was now officially in a recession. This follows a contraction in the country’s economy in the first quarter of the year, with gross domestic product declining 0.3% in the first three months of 2020.
The good news is that the government’s far-reaching support plans for workers, households and businesses, amounting to A$259 billion (or 13.3% of the Australian GDP) looks to mitigate a lot of the havoc the coronavirus is wreaking.
Shane Oliver, chief economist at AMP Capital Investors Ltd. thinks that this may well be Australia’s saving grace.
“The relatively good handling of the virus and supportive economic policies will mean that Australia comes out of the crisis in better shape compared to many of our global counterparts. We think there will be a strong bounce back in GDP growth in the second half,” Oliver told Bloomberg.
But what does that mean for homeowners looking to sell their property? Will the recession have a significant and lasting effect on the Australian property market?
1. What happens to home prices during a recession?
An economic downturn affects just about every industry that the economy comprises of, and the real estate sector is no exception. Already, the Australian property market is echoing weak consumer sentiment, and there has already been a drop in market activity, with home listings 35% lower than they were this time last year, and 43% below the national five-year average.
The expectation is that the capital cities will see residential prices fall by 4.4% over the June 2020 quarter, and another 2.3% drop is expected in the September quarter. At the time of writing this article, there has been a 0.5% price drop in the average price of property in the country.
This is to be expected, of course, as economic recessions do typically lead to a drop in the price of property. Exacerbated by the coronavirus outbreak and the payment holidays that many banks have offered on mortgages as a result, some sellers have decided not to put their property on the market immediately.
CoreLogic’s head of research, Eliza Owen, ascribes this to a sense of urgency to sell that is not quite as pressing as it would have been without the mortgage holidays.
“Not a lot of people are selling right now because not a lot of people have to sell right now. And I think that is a reflection of banks’ policies where they’ve offered this kind of holiday on mortgage repayments,” says Owen.
2. Is the timing right for you?
Deciding whether to sell or not to sell a property in the current circumstances will very much depend on the reasons individual sellers have for wanting to put the property on the market. The current market conditions are typical for a recession: fewer buyers and lower prices are likely to be the norm for as long as the trying economic circumstances persist.
Some sellers may want to wait out the storm and hang ten until things seem more favourable and a higher selling price is likely. With this being said, it is far too early to try and say just how long economic recovery is likely to take. Suffice it to say that it might be a good while until the market returns to something resembling the good run property has had in Australia over the past few years.
On the other hand, some people might be anxious to sell as quickly as possible due to specific personal circumstances, like having to transfer elsewhere for a job.
If you are in two minds as to whether this is the right time to sell, your personal circumstances will dictate what the right decision for you is. In terms of market timing, even economic experts are having trouble predicting what the market will look like in a few months. For this reason, it will serve sellers well to rather take their own circumstances into account when deciding whether to sell or not, instead of trying to make predictions in the middle of the storm.
3. Are you buying and selling at the same time?
Under normal circumstances, buying and selling a home at the same time can send sellers into a panic, but during a recession, lower property prices could actually be beneficial for the seller.
Because the recession affects the market as a whole, sellers looking to acquire another property while selling might also be lucky enough to find a bargain – albeit while having to sacrifice some profit of their own.
If sellers are selling in order to invest the profit elsewhere, now might not be the ideal time to sell, as the financial benefit they will reap may be smaller than it could be in a few months or years. On the other hand, if a seller is looking for another property, this is a great time to take advantage of lower house prices.
4. How to price a house during a recession
It goes without saying that a price which is simply too high will cause a home to stay on the market longer than sellers would like. At the best of times, pricing a home is a complex process that requires sellers, together with their real estate agents to take a look at comparable properties when estimating an asking price. As home prices across the board are expected to be lower in the following months, it makes sense to also adjust the asking price on your home accordingly. Especially now, a home with a price that is too high will stand out among the rest, and will not necessarily be the first choice for homebuyers – even more so if comparable properties are going for prices that are much lower.
Home sellers will do well to remember that the buyers’ pool is also smaller now, meaning that they won’t be able to rely on competition among buyers driving prices up.
If you are serious about selling as quickly as possible, adhering to market trends and sacrificing some of the profit you could have made, had times been a little different, is perhaps the more responsible decision. Ask your real estate agent what a realistic asking price would be, considering the current global and domestic market, and then decide whether you are satisfied to sell at said price.
5. Make the home move-in ready
Unless you are selling a fixer-upper, it almost always pays to undertake small cosmetic repairs and renovations to the property. As people probably have less cash to spare in the midst of the recession, properties that require extensive work will likely spend far longer on the market than they would without all the economic turmoil – and even so, fixer-uppers are notorious for the time they tend to spend on market.
In this regard, your real estate agent might advise that you get your home as close to move-in ready as it can be. This means taking care of anything that doesn’t work exactly as it should – you’d be surprised at how quickly light switches that need to be pressed just so can put prospective buyers off of buying a property. The devil’s in the details, and fixing all the small issues of the home will show sellers that you’ve gone to the effort of making it easy for them to pack their belongings and move in.
Bigger repairs like tending to plumbing problems or the roof should not be left for the buyer to fix when a recession is at the order of the day. Precious few people have money to spend on repairs after acquiring a property, and the small group of buyers looking at the property are, no doubt, going to be put off by such a prospect.
If you are not sure what meticulous buyers will keep an eye out for, have a look at these guidelines.
Recessions are a normal part of the global economic cycle, and even if Australia has been lucky enough to experience economic stability and growth for close to three decades, the onslaught of the novel coronavirus has put the domestic markets under pressure, as it has just about everywhere else in the world.
The property market has not been spared, and already there are indications that house prices are likely to drop. In addition, economic pressure on consumers means that there will likely be a smaller buyer pool to market to.
All of this doesn’t mean that your home will not sell now – and if you are buying and selling simultaneously, you could be in the lucky position of picking up a bargain yourself.
A real estate agent that understands the tumultuous undercurrents of the property market is your best ally if you are looking to sell in the midst of the coronavirus and the recession. Still haven’t found someone to help you sell? Let Perfect Agent find an agent that understands all your property needs.