At the end of 2019, the Australian property market was in full swing, with prices in capital cities on the rise and high auction clearance rates. Then came COVID-19...
Prices in capital cities were on the rise and auction clearance rates were comfortably back in the mid to high 70%. The start of 2020 was positive with first home buyers re-entering the market, strong listing volumes, a low cash rate and the subsequent flow on to mortgage affordability.
Then came COVID-19…
When the crisis escalated in late February, global share markets went into a tailspin, weighing heavily on consumer and business confidence. As each day brought new developments and shocking statistics, nobody knew how long the virus would be around for, what its financial impact would be and how long the effects would be felt through trade and industries.
Lockdown laws changed everything
The Government responded quickly, issuing a series of stimulus packages with cash handouts to consumers and support for small and medium businesses. The RBA also stepped in, cutting the official interest rate to 0.25% on 19 March – the first time it had cut rates outside its regular monthly cycle since 1997.
And suddenly the country found itself in lockdown. The only reasons you could only leave your house were to shop for groceries, exercise, attend medical appointments or attend work/school.
So, like many industries, real estate had to adapt... and quickly. Open homes and on-site auctions were banned. Property viewings were by private appointment only and many properties moved to sale by private treaty or online auction.
Prices and sales remain remarkably resilient
Over the last few months COVID-19 has had a big impact on listing volumes, but house prices have been relatively resilient. There are a few key reasons for this1.
Low listing volumes and seller activity have constrained housing supply.
Many view this as a temporary, enforced downturn, so vendors might be holding onto a relatively high expectation of their property value, planning only to sell when the economy starts moving again.
Banks have allowed borrowers to pause mortgage repayments relieving financial stress and avoiding forced property sales.
We spoke to Real Estate Agent Julie Hatch from Cobden & Hayson about the changes.
“When the restrictions came in, people were immediately uncertain and didn’t know what to do. Although we’ve still had properties on the market and they’ve still been selling, buyer interest levels have dropped. We’ve only had four or five people through a property rather than 20. In general, there’s been some small adjustment in prices, but the lack of stock has kept prices stable and vendors have secured good prices.”
Technology has been proved as invaluable for the Australian property market, with 3D virtual tours introduced into marketing campaigns to help buyers see inside a property.
According to Ms Hatch, “the restrictions have made real estate agents think about doing things differently – using online auctions, private viewings and a lot more one-to-one contact resulting in quality conversations. This has resulted in a pool of genuine buyers – those who need to buy and have real intent and capability. Private treaty has also become popular. Unlike selling by auction, this gives buyers a five-day cooling off period. It’s actually given buyers more comfort to make a decision with extra time to carry out their due diligence.”
Lifting restrictions brings opportunity
The housing market could bounce back quickly for two reasons2.
- There wasn’t a full shutdown.
- The cost of borrowing is historically low.
Although people have been stuck at home for several weeks, they’ve had time to research properties online, and perhaps even enabled those not previously considering buying or selling to enter the market.
Ms Hatch explains the next steps for the property market as the Government relaxes some of the restrictions.
“The number of enquiries has gone through the roof since the Government announced open homes and auctions could resume in NSW.
"In response, we’ve adopted strict protocols for open homes, ensuring hand sanitiser is available and providing clear notices about social distancing. We’ll also be controlling the number of people inside a property.
"Based on buyer feedback, it’s likely we’ll adopt many of these processes into our standard business model going forward. We’ve been inspired by what we’ve learned through isolation and restricted business practice and have seen clear ways to improve the experience for every client.
"Buyers like the fact that they have more opportunity to speak with the agent and can view a property at their own pace. I also believe that selling by private treaty will become a bigger part of the conversation we have with prospective vendors, and there will be less of an assumption that everyone wants to sell by auction. However, it does typically take longer to sell a property this way as there’s no specified end date, so there will always be those that prefer the speed and competitiveness of an auction environment.
"We’re keen to see how buyers respond in the coming weeks. The timing is quite interesting because we’re entering what’s usually a ‘hibernation’ period over winter, but it looks like this year will be quite different. Although listings will remain tight, as we exit out of this crisis, we expect the improvement in confidence to filter through the property market.”
Long-term prospects for the housing market
Property values could still fall as Australia starts to recover. But low interest rates are always linked to a heated property market and the industry hopes this will hopefully spur on a greater pool of potential buyers.
There’s some talk of Stamp Duty being reviewed to support Australia’s economy post-COVID-19. It’s forced Australia’s state and federal governments to consider whether the unpopular levy continues to be an efficient revenue stream3.
It’s also possible we could see a second wave of disruption to the housing market in September when the banks turn off their support to mortgagees and the JobKeeper package comes to an end. Only then will people’s financial status really be tested as we’ll inevitably still have high unemployment and businesses returning slowly to trade.
If nothing else, when combined with the volatility we’ve experienced in the Australian property market over the last 2-3 years, COVID-19 has been a great reminder that property is a long-term investment. Bricks and mortar can work well as part of a long-term diversified portfolio but shouldn’t be relied on as a quick way to make money.
1 The Relative Resilience of Property Values https://www.corelogic.com.au/news/relative-resilience-property-values
2 COVID-19: What will Australia's recovery look like? https://www.realestate.com.au/news/covid-19-what-will-australias-recovery-look-like/
3 Stamp duty: Numbers crunch shows colossal savings https://www.realestate.com.au/news/stamp-duty-numbers-crunch-shows-colossal-savings/
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