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Contrary to the doomsday headlines projecting a dramatic fall in house prices due to COVID-19, the property market will likely witness a substantial recovery, according to the latest study by the Property Investment Professionals of Australia (PIPA).
The study analysed the four recent economic downturns in Australia and found that the annual median prices in capital cities increased significantly five years after each recession. Peter Koulizos, chairperson at PIPA, said the analysis of previous recessions indicates the resiliency of the property market.
“In fact, looking back over the past nearly 50 years, house prices were higher five years after a recession or downturn each time,” he said.
One of the most substantial turnarounds recorded was in Sydney, where prices shot up by 100% five years after the 1973-1975 recession. Sydney also led the recovery from the global financial crisis in 2008-2009. In 2014, property prices in the city rose by 39.7%.
It is crucial, however, to take note that the local economic factors of capital cities play a big role in how their property markets can bounce back, Koulizos said.
The table below shows the price gains recorded in each capital city five years after the four most recent economic downturns:
Is there a reason to worry post-COVID-19?
Koulizos said there’s no reason to panic, given that property market has always been resilient amid economic shocks.
“The research shows that talk of impending property ‘doom’ has never happened in recent history — and these recessions or downturns lasted multiple years rather than a few months,” he said.
While prices are still likely to fall, Koulizos said a possible downturn in the housing market will not be sustained or prolonged.
“An interesting point to that is that in 2011, every capital city recorded a fall in its house price index, which was simply when the GFC stimulus money ran out,” he said. “This could well become a statistical reality this time around, too, but it’s important to recognise that within either one year or two of that period, the house price index was showing solid growth once more.”
In a recent interview with Your Investment Property, Simon Pressley, managing director of Propertyology, said the market remains favourable given the low mortgage rates, support for first-home buyers, and the “sensible” credit policy.
“Savvy property investors understand three to six months of disruption is minor in the overall scheme of property ownership. If anything, it creates a small window of opportunity. After all, they are investing in the essential commodity of shelter,” he said.
Gerv Tacadena, Your Investment Property, 19 May 2020