Housing market shrinks for fifth month, but there’s signs of a recovery
Oct 2020Karen Millers
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Rising consumer confidence, more property listings and generally increasing housing values weren’t enough to offset the falling values of properties in the largest two capital cities, analysts have said, ultimately leading to Australia’s fifth month of falling property prices.
Average home values across the nation fell by 0.1 per cent in September, according to CoreLogic’s Hedonic Home Value Index, representing the smallest drop since the COVID-19 coronavirus struck.
Melbourne and Sydney, which account for 40 per cent of housing stock and 55 per cent of values, fell a respective 0.9 and 0.3 per cent in September, while the six other capital cities experienced gains.
The pandemic’s toll on the major cities anchored the average property growth across the country, Tim Lawless said, head of research at CoreLogic.
“Since peaking in March, Melbourne values are down 5.5 per cent,” he said. “With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October.”
Property values are growing in most areas
The 0.1 per cent average fall is torn between two trends: a 0.2 per cent drop in the combined capital city average, and a 0.4 per cent lift in regional property values.
Changes in lifestyles brought about by the pandemic have seen more people want to live in regional properties, Mr Lawless said
“(We’re) observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required,” he said.
“Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part.”
Other organisations have observed the shift in preference towards regional lifestyles, including SQM Research, the Property Investment Professionals of Australia and Domain.
Regional properties did experience modest drops from lower prices since coronavirus lockdowns swept the country in late March, CoreLogic said, but they have chartered a quicker and stronger recovery than city property values.
Whereas regional values slipped 0.8 per cent since March, capital city values fell 2.6 per cent on average.
Why housing values haven’t fallen more, bucking forecasts
Economists, analysts and experts anticipated housing price falls of 10 to 15 per cent across the nation, but the property market has proved to be more resilient — for a number of reasons.
One key reason has to do with people not having to sell off their house because they can’t meet their mortgage commitments, Mr Lawless said.
“We aren’t seeing any signs of a rise in distressed listings or stock starting to pile up in the market,” he said.
“In fact, the opposite seems to be true, where new listings are being absorbed by the market faster than the rate at which they are being added.”
The coming months will be a critical test for the housing market as people resume mortgage repayments after deferrals end, and the government payments including JobSeeker and JobKeeper are reduced.
Westpac’s chief economist forecasts about 60,000 homes will be sold as distressed sales due to the changes from next year.
“A rise in urgent or distressed listings would provide a further test for the resilience of housing values,” Mr Lawless said.
Fewer homes are for sale, propping prices
There’s 25 per cent less homes advertised for sale on the property market, when compared to the five year average, and the constrained supply is slowing the drop in property prices, CoreLogic said.
Compared to the same time a year ago, property listings are down 22 per cent.
“The imbalance between available supply and housing demand is one of the reasons why housing values have hardly fallen through the COVID period so far,” Mr Lawless said.
“It helps to explain the recent upwards trend in values across some cities.”
Data from the Australian Bureau of Statistics indicates the typical house dropped about $12,500 since the beginning of the year.
But the outlook for property values remains uncertain.
On the one hand, mortgage deferrals are beginning to expire, unemployment is high and government payments are being reduced. On the other, interest rates on mortgages are at historic lows, the market is not flooded with an oversupply of houses and consumer sentiment is on the rise.
“The aggregate effect … seems to be outweighing the negative economic shock brought about by the pandemic, “ Mr Lawless said.
Tony Ibrahim, RateCity, 1 October 2020
https://www.ratecity.com.au/home-loans/mortgage-news/housing-market-shrinks-fifth-month-there-s-signs-recovery