CORONAVIRUS COVID-19 PANDEMICRESEARCHRESIDENTIAL PROPERTY

Residential confidence deteriorates, employment uncertainty rises

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HOUSING sentiment collapsed during the June quarter as the pandemic took hold of the market, and NAB maintained its outlook of up to 15% being slashed from prices.

The latest NAB Quarterly Residential Property Survey showed employment security is now the overwhelming impediment for buyers of existing property.

About eight in 10 surveyed property experts tipped the biggest impacts to the housing market going forward would come from rising unemployment, job uncertainty and consumer confidence.

NAB’s Residential Property Index fell to a survey low -33 points, from a positive reading of 38 in the March quarter. All states turned down sharply, but the impact was biggest in Victoria and New South Wales, where prices and rents are expected to fall most in the next 12 months.

Sentiment fell most in Victoria – down 95 points to a record low -50 – and was lowest of all states after having led the country in the previous quarter.

Steep falls were also recorded in NSW, down 84 points to a survey low -47, and Queensland, down 45 to an equal survey low -9. In South Australia/Northern Territory, sentiment fell 33 points to -26, its lowest level since the December quarter of 2015.

Western Australia’s state index also fell a sharp sharply, down 48 points to -8, but it was highest of all states, and is the only state where sentiment remains above average (-10 points). Sentiment is also well above the lows seen through much of 2015 through to 2017, when the mining investment downturn took also dragged house prices.

Confidence levels slipped in all states, and overall levels were mainly driven into negative territory by Victoria (down 79 to -30), NSW (down 58 to -21) and SA/NT (down 50 to -24), where confidence levels have now fallen to new survey lows.

Confidence in Queenslanders also fell heavily (down 33 to +6), and in WA dipped 17 but is a relatively high +33.

“We have not changed our view on property prices – we expect the impact of the COVID-19 downturn will see a decline in prices of around 10 to 15% from peak to trough,” NAB chief economist, Alan Oster said.

“While prices have held up slightly better than expected, they have now declined for two consecutive months across the capitals and we expect this to continue for some time yet. This easing in prices in Sydney and Melbourne comes after a very strong period in growth from mid-2019 where prices troughed.”

“While the initial COVID-19 related restrictions on housing activity have eased, the economy has undergone a very large contraction, and while we appear to have passed the trough in activity, it will take time for the recovery to unfold.”

After growth of 5.3% each in 2019, NAB expects Sydney and Melbourne prices to fall 4.7% and 7.3% respectively in 2020, and by 4.9% and 6.5% next year. Perth is also in line for hefty falls, of 7.5% and 4.6%. Brisbane is in line for modest falls of 1.3% this year and 1.5% next, while Adelaide prices will inch upwards in 2020 and take a 1.2% dip in 2021.

The only meaningful gains this year will be seen in Hobart, of 1.3%, before a 2.4% drop next year.

Oster said the labour market fallout and consequent impact on households will continue to play out over an extended period, which will likely see ongoing government support.

Survey respondents were less bearish about house prices in the major markets. Victorian respondents tipped falls of 3.0% over one year and of 1.1% over two years, and falls of 2.5% and 0.2% in NSW.

Modest falls into modest rises were tipped for WA and Queensland, and a 2.2% fall in SA/NT is forecast before a 0.7% drop in 2021.

S&P Global Ratings has forecast of a fall in house prices of about 10% before resuming modest growth around the middle of 2021. It said demand side pressures, including less immigration and weaker consumer sentiment, would be offset by lower interest rates and reduced construction activity in the next 12 months.

Capital Economics expects the decline in house prices to continue in the coming months even as economic activity recover, and a fall of 5% to 10% over the coming year.

Rents are expected to fall by 1.3% in Victoria and NSW by 1.5% over 12 months, with gains of 2.3% in WA and 0.5% in Queensland, and no change in SA/NT.

Over the next two years, rents are expected to increase by 4.0% in WA, 1.9% in Queensland, 1.0% in SA/NT and 0.5% in NSW, with a slip of 0.1% in Victoria.

Owner occupiers are supporting new and established housing markets, but higher activity from foreign buyers was also reported, especially in Victoria’s new property markets.