Covid-19’s impact on the property market
How far will property prices fall and at what point will they recover? It’s the million dollar question. Literally.
Nobody really knows the answer, but there has been a great deal of speculation as to what will happen in the property market in the next 12 months.
First the bad news
A prolonged downturn exacerbated by unemployment hitting 9 per cent this year before falling to 6.5 per cent in 2022 could see property prices fall 32 per cent.
That is the Commonwealth bank’s worst case scenario.
A better scenario sees a V-shaped recovery occurring leading to house prices dropping by ‘just' 11 per cent.
NAB and ANZ are also predicting double-digit price falls, with NAB forecasting a 15% drop in house prices for Sydney and Melbourne over the next 12 to 18 months, and ANZ predicting a 13% drop.
Both banks estimate an average 10% drop in house prices nationally.
Again, unemployment along with weaker household income are the biggest drivers of the property downturn.
If a 10 per cent price fall occurs the median house price in Sydney would drop by $104,695 to $921,723, based on CoreLogic's April data. Melbourne’s median would drop 9.2 per cent, or $75, 330 to $743,476. Other states and Territories wouldn’t fare any better.
What we don’t want to see is a fall in real estate values creating a negative equity situation where borrowers owe more than their home is worth. In the past, this has been a rare occurrence and mitigated against by the Reserve Bank of Australia, successive governments and even the banks themselves.
But, as has been said too many times over the last few months, these are unprecedented times and the future is somewhat uncertain.
The good news
Looking at the projected price falls by the banks, it’s hard to see any positives.
Yet, not everybody is on that wavelength. Some property analysts believe there will be a quick recovery.
Certainly CoreLogic statistics suggest prices have been stable through March/April.
Data from both CoreLogic and SQM Research illustrate how prices have resisted the impacts of the pandemic. Remember, this is a time where there were no traditi0onal open houses or auctions.
CoreLogic’s data would hint that there is no concrete evidence of a price collapse.
The following table illustrates the majority of Australian cities are stable, with only Melbourne posting a slight decrease.
In fact, Perth (+0.2%), Adelaide (+0.4%) and Darwin (+1.7%) outperformed their six month average pace of growth in April. Thus, there is some resilience to weaker conditions.
The numbers remain stable, despite a weakening in market activity and a dip in consumer confidence.
Also worth noting, is the bounce back in combined capital city preliminary auction clearance rates, buoyed by a lower withdrawal rate. Clearance was back above 60% this week for the first time since late March, with 64.5% of homes selling.
This could improve again as we move closer to a resumption in open houses and live auctions.
So, can you still make money in the property market?
Long-term property holders certainly can, but only if they ride out the virus.
Property values are still likely to drop by 10 per cent, but even if that happens it’s worth bearing in mind that house prices in Australia have risen 49.45 per cent over the last 10 years.
That is still a tidy profit.
It is also worth noting here that recovery times are historically quick and may be again if the lockdown eases further.
The following graph shows Melbourne’s troughs and subsequent peaks.
That said, now is not the time to be flipping or selling your property.
However, it may well be the time to head to the bank to get a better interest rate and put more money in your pocket in these uncertain times, while waiting for the turnaround.
InfoChoice can help you compare rates. In fact, InfoChoice will give you $1000 if they can’t find you a lower rate when comparing the variable rates of the big four banks. Rates are as low as 2.39 per cent, so it’s worth having a look.
Buyers may also want to have a look. They’ll probably wait until the pandemic is over to come back to the market, but it’s worth having a look at current interest rates as they are likely to be on hold for some time to come. Then, when the pandemic is over, some astute research could help them pick up a bargain that may turn into a long-term windfall.
As for investors, rich lister Nigel Satterley and his co-investors are case in point.
This consortium swooped on almost $200 million of development sites in Greater Perth and Melbourne, in preparation for a rise in housing demand after the coronavirus pandemic passes.
So, is there money still to be made in property?
There is no straight yes or no answer, however a likely upswing in prices post pandemic should benefit those who play their cards correctly.