JobKeeper artificially supporting house prices, values to fall further

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MELBOURNE house prices have now fallen 4.6% throughout the pandemic, again posting the largest fall of the capital cities in August as the second wave of the coronavirus forced renewed lockdown measures.

The latest CoreLogic home value index showed values nationally dipped for a fourth month of pandemic-induced falls, down 0.4%.

However, this was largely due to Melbourne’s 1.2% decline. Five of the eight capital cities recorded steady or rising values through the month and the national figure has improved slightly over the previous two months.

Sydney values fell 0.5% in August, but barely fell in Brisbane and were steady or rose in all other capitals, led by Darwin (1.0%) and Canberra (0.5%).

CoreLogic’s head of research, Tim Lawless said the Melbourne housing market is the main drag on the headline results, demonstrating the impact of a worse viral outbreak relative to other cities, along with a larger demand side impact from stalled overseas migration.

“The performance of housing markets are intrinsically linked with the extent of social distancing policies and border closures which also have a direct effect on labour market conditions and sentiment,” he said.

“It’s not surprising to see Melbourne as the weakest housing market considering the extent of the virus outbreak, and subsequent restrictions, which have weakened the economic performance of Victoria.”

He said there a diverse outcome is likely for housing markets around Australia, depending on how well the virus is contained and the regions exposure to other factors such as its reliance on overseas migration as a source of housing demand.

Regional markets continue to outperform the capitals across the largest states. CoreLogic’s combined regional index has held virtually flat since May. Lawless said there are a variety of factors supporting regional conditions, including having avoided the drop in demand caused by the pause in migration, and appeal for relatively low density and lower price points, while normalisation of remote work could make proximity to major cities less of a factor in home purchasing decisions.

Hefty falls in sight

AMP Capital’s chief economist, Shane Oliver retained a forecast of Melbourne prices tumbling 15 to 20% top to bottom. Sydney prices are expected to drop 10 to 15% decline, whereas Adelaide, Brisbane, Perth and Hobart are only likely to see falls around 5% or less. Canberra is likely to be steady or to the positive.

“We are still in an artificial market as various support measures help support home prices. Were it not for JobKeeper, the increase in JobSeeker, the bank payment holiday and other support measures protecting heavily indebted households and property investors, prices would be falling more rapidly in response to forced sales,” Oliver said.

Capital Economics expects a forecast that house prices across the eight capital cities will eventually fall by 8% from their peak. Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics, said the latest reliable sales figures showed a rebound in May from the lockdown in April. CoreLogic’s modelled estimates suggest sales rose further in June before falling back again. Sales in August were 10% below the 2019 average.

Listings down

“Admittedly, listings have fallen as well so our sales-to-listings ratio has been just under one in recent months, consistent with rising house prices,” Thieliant said.

New figures from SQM Research showed a large 6.3% large drop in new listings for the month, predominantly driven by the shortfall in Melbourne.

“The Melbourne numbers are quite revealing actually. It is reflective of the near entire freeze-up of the Melbourne housing market. As the Victorian state government is heavily reliant on property stamp duty revenues, there must be a significant state revenue collapse occurring,” SQM Research chief executive officer, Louis Christopher said.

Listings in Melbourne fell 13.2% in August, and in Sydney by 4.0%, which is the only city to have a higher number of listings than this time last year. Falls were seen in all capital cities. Hobart shed 9.4%, Canberra 6.3%, Adelaide 5.8%, Brisbane 5.1%, Darwin 3.7% and Perth 2.0%.

“Elsewhere we continue to record falling supply in Australia’s regional areas. Our take on that phenomenon is that demand has boomed for regional real estate as more of our populations looks to remote living,” Christopher said.

Theliant said auction clearance rates outside of Victoria also point to rising prices, while CoreLogic’s estimates show that home sales in Melbourne weren’t as weak in August as they were in April and May even though real estate agents were only allowed to work from home.

Auction clearance rates are up from their April shutdown lows, but sales volumes are soft, particularly in Melbourne.

“However, our sales-to-listings ratio fell to fresh lows in May in both Sydney and Melbourne and points to further house price falls,” Thieliant said, adding that “we wouldn’t read too much into the auction data at the moment because the number of auctions has fallen to record lows.”

“Given that unemployment is set to rise further while consumer confidence is set to stay soft, we think that house prices will continue to fall. That said, record low borrowing costs and increasingly attractive affordability should limit the downside.”

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