Here I am being contrarian again. Most mainstream media is saying that the property market is tanking but I do not see any evidence to support that. Not at the end of April anyway. As we all know, its a very fast-moving situation – even if you are at home all day doing nothing.
According to property data supremo, CoreLogic, the national median house price actually rose in March by 0.7%. Local agencies I have talked to say that settlement numbers are much the same as they were at this time last year. I was looking forward to a slow month but that phone just keeps ringing. What to do!
Realestate.com.au also experienced a surge in online views. The site registered an all-time record of 10.7 million people looking online in March. Despite the real estate industry being forced to operate under the new restrictive guidelines. The January figure was also a record with a unique audience of 9.3 million. This may be due to more people being home with time to search. Online shoppers may be thinking about where they would rather be, or planning their next future move.
Price drops will only be severe if market sentiment declines further and we begin to experience ‘negative equity’. This is when the value of a property drops below the amount of debt it is carrying. A price drop of more than 20% is usually required. More people then exit the market, either because of an inability to service the debt or an attempt to minimise a perceived investment loss.
The Australian property market, with some of the highest valuations in the world, could benefit long term from a major correction. Whether this is that time is not a sure thing. There needs to be a perfect storm of negative influences. One is happening – the complete absence of the regular supply of foreign buyers and home occupiers. Australia usually welcomes around 350,000 new arrivals each year – migration, skilled workers, students, temporary workers. If this tap is turned off for a long time or permanently, it will have an effect on prices.
It is not certain that the other disrupters will occur. The main one being unemployment. If the government Jobkeeper and Jobkeeper stimulus packages finish in six months and the social distancing restrictions are still in place we may see a lot more downward pressure. Till then, the ongoing supply shortage of new homes and apartments in most of the capital cities still exists.
Location, location, location
Forced sales often occur with the lesser quality properties in less desirable suburbs. The golden rule of location location location may become more relevant at this time than ever before. The areas of suburban sprawl or high-density apartments may see a downturn and experience sluggish sales and price drops. Areas where people are not heavily mortgaged, are not renting, and do not wish to move will stay relatively firm. The very fact of properties illiquidity will be its best assurance – most people will not sell if they do not have to.
Sydney and Melbourne
Buyer’s agents in the southern capitals have reported they are seeing some top-end deals being pulled. A fall in the number of foreign buyers – and their representatives – at auctions is creating more opportunities for local buyers. Foreign buyers (mainly Chinese) were in decline since the recent Hong Kong troubles, which peaked around the Lunar New Year in January.
More Ups than Downs
This chart demonstrates the relative stability of property over the last 3 decades. There have been a number of downturns during that period, but when seen on a trend line, they are only minor blips. This is Sydney houses and apartments median house prices since 1997.
There’s no doubt that the virus will dent consumer confidence. The strong price recovery we were experiencing during the last half of 2019 may take a pause, but it remains doubtful, for this area at least, if it will be any more disastrous than previous corrections. This view is reaffirmed by conversations with local agents and professionals who are predicting a short period of hesitancy and a mood of ‘wait and see’.
In general, the existing trend of more movement to the regions is going to increase. Many people are going to keep and embrace the home office as a permanent fixture in the post-COVID-19 world. If working from home proves to be possible and popular, which it seems to be, then why not keep it. The Northern Rivers and the Byron area, in particular, have a unique offer and point of difference. You can move from the expense and hassle of the city to a rural region with no loss of lifestyle, entertainment, infrastructure, or cultural activities.
What I am hearing is to expect a rapid uptake of demand after a winter of trepidation and self-isolating. Unless of course, this is just the start of a major global wobble that will last much longer than six or nine months. Answering what will happen then is beyond my pay grade, I’m afraid.