Last year, prospective home sellers looking to put their property on the market in 2020 could never have envisioned the unique circumstances at play in the current Australian housing market.
The coronavirus outbreak has thrown the entire global economy into unchartered waters, affecting just about every single industry out there. Both locally and abroad, fluctuating markets have forced homebuyers that may have been thinking of investing in property to reconsider. The outbreak of the pandemic has led to numerous job losses, which potentially also has a role to play in the property market.
It is also important to remember that property accounts for being the largest part of most Australian households’ wealth – something that makes the economic upheaval caused by the outbreak of the novel coronavirus even more noteworthy. The International Monetary Fund has already made an adjusted economic forecast, predicting a 3% contraction in the global economy in 2020. This is the steepest economic downturn since the Great Depression in the 1930s, and it is bound to have effects on the global economy that will be felt for many years to come.
At the same time, the industry’s efforts to advertise the properties that are currently on the market have been hampered. Real estate agents have had to find online ways to replace open houses and home viewings, which have been significantly affected by the social distancing measures that the Australian government has put in place to curb the spread of the respiratory condition known as SARS-CoV2.
While house prices usually take a while to reflect what is happening in other parts of the economy (chiefly because property is harder to acquire than bonds and stocks, but also because there is great variety in the property market and people place a higher wager on property than they do on other investments), we can use the coronavirus’s effect on other parts of the economy as a good indicator of what lies ahead for this industry.
The Australian property market has had a good run over the past few years, but what will the next few months hold? While the market is especially difficult to predict in circumstances that are highly unusual, we can say with relative certainty that the housing market in Australia is likely to see prices fall in the foreseeable future.
The coronavirus effect on housing supply and demand
If you are a home seller looking to make the best possible profit from the sale of your property, you might be wondering whether this is the right time to put your home on the market. While the market looks to be shifting from a seller’s to a buyer’s market, one of the most basic economic principles is still valid. Even in these uncertain times, supply and demand are inextricably intertwined with one another. While buyers may be more hesitant to put their property on the market for fear of financial losses, buyers may still be looking to acquire property – especially as house prices in Australia look to be lower for the first time in quite a while. Already, the housing market is starting to reflect weak consumer sentiment and a drop in market activity: at the end of April, home listings were 35% lower than the same time last year, while these numbers were 43% below the five-year average.
Models used by researchers at the University of Melbourne predict that residential prices in the capital cities are likely to fall by 4.4% over the June quarter of 2020, and an additional 2.3% in the September quarter.
The IMF has forecast that the Australian economy will contract by around 6.7% as a result of the coronavirus and the ensuing lockdown to curb its spread. But it’s not all bad news – the IMF also expects a 6.1% rebound in 2021, should the coronavirus be contained or a vaccine be found.
Many Australian banks have offered their clients mortgage holidays on account of the financial challenges resulting from lockdowns to stop the spread of Covid-19. In terms of supply and demand, that means that there are generally less people selling their houses at the moment.
Says CoreLogic’s head of research, Eliza Owen, “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.”
Under normal circumstances, less people selling their property would point to a seller’s market. Where this might typically push prices up, the current conditions certainly don’t signal normal circumstances. For the first time in close to a year, property prices in Australia fell.
The 0.5% price drop is still relatively mild, though, especially considering the effect that the lockdown has had and will continue to have on employment in the country, but economists expects the true test for the housing market is likely to come when government stimulus packages (offered in the form of wage subsidies) and the six-month payment holidays offered by banks expire.
Should economic activity not pick up, housing values could come under additional downward pressure later in the year. How exactly things will play out is rather difficult to say, though, as much of the economic consequences of the virus depends on the way the virus behaves – something notoriously difficult for even medical professionals to predict.
Should home sellers reduce their price?
The property industry’s true test is likely to come once the payment holidays and other stimulus packages expire. While the economy is already starting to open up and slowly resume normal activity, some experts are predicting unemployment figures of up to 10%. Unemployment is already higher than it’s been since September 2015, and the Australian treasury postulates that this trend will continue.
Of course, less disposable income means that people are less likely to make large purchases like buying a home. With home listings becoming less, and as demand becomes less, too, the property market might be under greater pressure than it has been in years.
With property prices likely to fall in the next few months, the onus is really on sellers to decide whether they are desperate to sell their home, or not. If a lender is offering a mortgage holiday, home sellers are probably under less financial pressure than they would be without these payment holidays, meaning that now is perhaps not quite yet the time to reduce the asking price. Sellers might opt to change their decision if buyer interest is low, but ultimately the entire industry is likely to be affected by the job losses cause by the coronavirus outbreak.
Economists and property experts are saying that property prices will inevitably fall over the next few months and perhaps even over the next few years. With this being said, the property market is notoriously hard to predict, and with the unpredictable nature of Covid-19 also thrown into the mix, it is even more difficult to say how the property market, the Australian economy and the global economy will ultimately be affected.
Making economic predictions is especially difficult if there is a range of factors to consider when forecasting likely outcomes.
In the midst of a global pandemic, we need to consider both the medical outcomes as well as the economic fallout caused by the measures used to contain the outbreak of a contagious virus. In the case of the novel coronavirus, most governments have opted for lockdowns in an effort to limit the spread of the virus. This has dealt a harsh economic blow to industries all across the globe, forcing the closure of many businesses and leading to layoffs for many others. Rising unemployment leaves consumers with less disposable income, but pressure on the property market looks to be driving the price of property down for the first time in years.
It is still too early to say what the effect of the coronavirus will be on the Australian property market at large, and this leaves home sellers and buyers with a great deal of uncertainty about acquiring property or putting it on the market.
Whether you are looking to buy or sell in these turbulent times, a trained and experienced real estate agent is your best ally. Real estate agents stay on top of trends and news relating to the property market, and are watching the effects of the coronavirus on the property market play out in real time. What works now might not be what works in a month or two, which is why you need advice from someone qualified who understands the property market they do business in.
Let Perfect Agent recommend an agent you can trust to get the best possible deal and outcome for you, even when the market is tumultuous. A quick survey lets us know what you’re looking for, and helps us to recommend a real estate agent that will be a perfect fit for you.