MELBOURNE’S second coronavirus wave is expected to slash as much as 20% from house prices in the city, and combined with the impending rollback of support measures from October presents ongoing challenges to the national market.
CoreLogic’s latest home value index showed Melbourne (down 1.2%) and Sydney (down 0.9%) led the decline in house prices during July.
Only Canberra (up 0.6%) and Adelaide (by 0.1%) posted a rise in dwelling values over the month. Perth (down 0.6%), Brisbane (0.4%), Darwin (03%) and Hobart (0.2%) all saw declines.
Melbourne prices have now fallen 3.5% since its March peak, and by 3.2% over three months, while Perth is down 2.2% and Sydney 2.1% on a quarterly basis. Darwin has fallen 1.6% and Brisbane by 0.9% in that time, while gains were seen in Canberra (1.3%), Hobart (0.9%) and Adelaide (0.3%).
Regional markets have shown more resilience to falling values over the past few months. Housing values were unchanged in July, and regional Victoria (down 0.5%) and regional Western Australia (down 3.2%) were the only non-capital city markets to record a fall in values over July.
CoreLogic’s head of research, Tim Lawless, said housing markets have remained relatively resilient through the COVID period so far, adding that housing turnover has recovered quickly after its sharp fall in late March and April.
“Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn,” he said.
AMP Capital’s base case for national property prices has been revised downwards from 5 to 10% to 10 to 15%, top to bottom. Melbourne is now expected to see a 15-20% decline, partly reflecting the bigger hit to its economy from its ongoing lockdown. Sydney prices likely to see a 10-15% decline, while Adelaide, Brisbane and Hobart are only likely to see falls around 5%, and Canberra prices are likely to be flat to up.
Despite a 22.3% decline from its 2014 high, Perth remains more fragile is expected to see a 5-10%.
“However, if the resurgence in coronavirus cases in Victoria morphs into a broader ‘second wave’ of cases across Australia necessitating a renewed economy wide lockdown and a renewed broad based downturn in the economy then the likelihood of a 20% plus decline in prices will escalate,” Oliver warned.
He said Sydney and Melbourne are the most vulnerable given their higher dependence on immigration, higher debt to income ratios, higher house price to income ratios and greater investor penetration.
High and still rising unemployment, with true unemployment absent government support measures estimated to be just above 11%, a halt to immigration that has reduced underlying dwelling demand by around 80,000 dwellings a year, and the depressed rental market will likely combine to drive weak housing demand and increased forced sales, Oliver said.
“JobKeeper, increased JobSeeker, bank payment holidays and other support measures have so far helped head off a sharp collapse in prices but the market has still weakened anyway and we expect an acceleration in falls as support measures start to be tapered from the December quarter.
“We are also assuming more government stimulus to be announced in the months ahead – but if it’s not forthcoming it would also add to the risk of a sharper fall in property prices than in our base case.
“As a result we are still in a bit of a twilight zone as support measures help protect the property market and keep price falls gradual.”
Activity set to slow
Lawless said the medium term outlook remains skewed to the downside, and that urgent sales are likely to become more common as fiscal support tapers from October and repayment holidays expiring at the end of March next year.
“Similarly, the recent concerns of a second wave of the virus and the potential for renewed border closures and stricter social distancing polices are likely to further push consumer sentiment down. This is likely to weigh on both home buying and selling activity more broadly.”
Ben Udy, Capital Economics’ Australia & New Zealand economist, said home sales appear to have fully recovered from a nearly 22% fall in April to their lowest level since 1990, with estimated sales in June and July both above the average pace of sales in the six months prior to the outbreak. New listings recovered at a gradual pace in July and are still around 10% below their average over the six months preceding the outbreak.
“Lower supply should help limit the decline in prices in the near term. Indeed, auction clearance rates also picked-up in recent months, consistent with modest increases in house prices,” he said.
CoreLogic data shows the number of properties for sale has fallen a further 4.3% and is sitting 15.2% below this time last year. Lawless said increased demand driven by housing specific incentives from both federal and state governments, especially for first home buyers, have become more substantial.
However, Capital Economics expects auction clearance rates to fall again before long. Auction clearance rates in Melbourne fell from a high of 60% in June to around 45% one week ago as fears of renewed lockdown grew.
“What’s more, the recovery in activity has stalled or started to reverse in most capital cities. We therefore wouldn’t be surprised if housing activity in those states also started to weaken,” Udy said.
“We ultimately expect house prices to fall by 5 to 10%,” he added.
Weaker house prices will weigh on dwellings construction, limiting the recovery in economic activity and GDP growth. Dwelling approvals fell 4.9% in June to their lowest level since 2012.