It’s been a tumultuous month for our economy and our property markets.
And while I intend to outline the latest end of month findings from Corelogic, I recognise how out of date they are already.
So let’s use this data as a baseline for my future monthly market updates as we continue grappling with the ongoing Coronavirus pandemic.
Even though we are starting to see some impact from the COVID-19 on housing markets due to a drop in consumer confidence and weaker economic conditions, let’s start with the position at the beginning of the month.
The following chart shows how a number of States started the month at their market peak in property prices; while Sydney property values have made up much of the ground they lost in 2017-9 and were on track to reach new peaks had Coronavirus not infected the market.
At the beginning of this month settled property sales had been trending higher and most cities had staged a recovery from the previous housing market downturn.
The trends were generally positive across each of the capital cities.
But what’s ahead now that COVID-19 is crippling the markets?
It has been three weeks since the government shutdown non-essential services, placed a temporary ban on auctions and open inspections, and essentially halted the economy in response to COVID-19.
CoreLogic’s hedonic house price index had already been showing a loss of momentum in housing value growth rates since mid-March.
Data through to mid-April has seen a continuation in this trend, with the combined capital city measure slipping into negative territory week-on-week for the first time since early August last year.
How deep an impact the coronavirus created recession will have on our housing market remains uncertain.
But it’s logical to look back at previous economic shocks to see how the housing markets performed, and the attached chart from Corelogic shows that housing values remained relatively insulated.
On the other hand during these shocks transaction numbers dropped considerably as buyers and sellers went on strike due to lack of confidence.
In fact, the charts below show that housing values have generally held relatively firm during these periods before showing a strong upwards trajectory due to stimulus measures such as low-interest rates.
But transactional activity has been more affected, with annual sales falling 39% after the Black Monday stock market crash in 1987.
The Asian financial crisis in 1997 saw housing sales fall by 22%, and sales were down 34% following the Tech Wreck in 2001.
More recently, the Global Financial Crisis saw the market activity drop by 23%.
This time around a drop in consumer sentiment and weaker economic conditions will again impact on dwelling values, but how much they will fall remains uncertain and will depend on how long it takes to contain the COVID-19, how long the social distancing regulations will be in force and what future additional support the government will give to shore up our economy and businesses.
Sydney Property Market
Prior to COVID-19 the Sydney property market was on the move having recorded its quickest turnaround in decades.
Since bottoming out after the election in May, Sydney dwelling values have recovered by 13%.
Sydney dwelling values increased 1.1% over the month of March (3.9% over the last quarter)
The recovery was most concentrated across the premium end of the housing market where values were previously falling more rapidly.
At the other end of the market, investors and home buyers had already abandoned the off the plan apartment sector for many reasons including concerns about construction standards,.
And many of those who purchased off the plan a few years ago are now going to have trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.
While A grade homes and investment grade properties are likely to fall a little (5- 10%) moving forward, this is a great time for cashed up investors and homebuyers planning to upgrade to buy a property considerably cheaper than they would have had to pay a few months ago, and for considerably less than they will have to pay this time next year.
B grade (secondary) dwellings may fall in value by 10-15% and C grade properties are likely not to sell at all.
Sure there are fewer good properties for sale at the moment, and almost all the good ones are for sale off market, however if you’d like to know a bit more about how to find these investment gems give the Metropole Sydney team a call on 1300 METROPOLE or click here and leave your details.
Melbourne Property Market
Before Coronavirus hit our markets, Melbourne property prices were surging with dwelling values up 12% higher to reach new highs.
But the pace of capital gains across the Melbourne market had been slowing since October last year when the monthly gain peaked at 2.3%.
Slowing conditions were most evident across the premium end of the Melbourne market where the quarterly growth rate has more than halved, down from 8.1% late last year to 3.0% over the March quarter this year.
And it’s likely price growth will stall for a while now.
Like in Sydney, A grade homes and investment grade properties in Melbourne are likely to fall a little (5- 10%) moving forward.
B grade (secondary) dwellings may fall in value by 10-15% and C grade properties are likely not to sell at all.
At Metropole we’re finding that strategic investors with a long-term view and homebuyers looking to upgrade are still in the market, picking the eyes out of the off market properties.
It’s likely that they see the long-term fundamentals as Melbourne rates as one of the 10 fastest growing large cities in the developed world,.
Melbourne’s population was forecast to increase by around 10% in the next 4 years.
Clearly this will slow down now, with restricted borders protecting Australia, but once we “cross the bridge” Melbourne will remain one of the most liveable cities in the world.
If you’d like to know a bit more about how to find investment grade properties in Melbourne please give the Metropole Melbourne team a call on 1300 METROPOLE or click here and leave your details.
Brisbane Property Market
Understandably, the coronavirus crisis is creating uncertainty for those interested in the Brisbane property market.
Looking back over the last few years Brisbane’s property downturn in 2018-9 was quite shallow compared to the big two capital cities and following its recent upturn property values have reached a new peak.
However, Brisbane property prices are still about 55% of Sydney’s while household incomes are only around 12% lower, underpinning the value of Brisbane real estate.
But what’s going to happen to the Brisbane housing market moving forward?
In general Queensland is highly exposed to the Chinese economy, in particular tourism, education and foreign property purchases.
This means the Queensland property markets are likely to suffer.
On the flipside, once travel bans are lifted, the Queensland economy and property market should benefit from more local travel by Australians as it is likely that overseas travel will still be restricted.
Not all Brisbane property will be impacted equally
Clearly there is not one Queensland property market.
Regional Queensland is likely to suffer more while the Brisbane real estate market is underpinned by multiple pillars, and therefore likely to suffer less than areas like the Gold Coast and Sunshine Coast or regional Queensland.
But even Brisbane does not have ‘one’ property market.
Based on the predicted pace of the post-recession recovery, I would expect the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the Global Financial Crisis.
Just to make things clear…I have confidence in the long term future of the Sunshine State capital.
Brisbane is one of the world’s great cities.
Liveability, affordability, scale and future economic prospects all suggest that Brisbane is a market where you can confidently buy.
While it’s true that once we come through the Coronavirus pandemic Brisbane is likely to be the one of the best performing property market over the next few years, there is not one Brisbane property market.
While some locations in Brisbane have strong growth potential, and the right properties in these locations will make great long term investments, certain submarkets should be avoided like the plague.
In the long term Brisbane’s economy is being underpinned by major projects like Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick off for a few more years.
Our Metropole Brisbane team has noticed a continued enquiry with many more homebuyers and investors showing interest in property.
At the same time, we are getting more enquiries from interstate investors there we have for many, many years.
If you’d like to know a bit more about how to find investment grade properties in Brisbane please give the Metropole Brisbane team a call on 1300 METROPOLE or click here and leave your details.
Adelaide Property Market
Adelaide dwelling values are currently at a record high, having increased by 0.9% over the year.
Values had been consistently rising since October last year, with the pace of growth generally higher at the more affordable end of the market.
The lower quartile of the market has recorded a rise of 2.3% over the past twelve months, while the upper quartile is down by 0.6%.
However, Adelaide will not be immune to the coronavirus led recession, particularly as it does not have multiple pillars supporting it economy.
Perth Property Market
It looked like the Perth market was finally starting to pick up.
Yet despite renewed growth, the median house value across Perth remains the lowest of any capital city.
Housing values were slowly emerging from a slump that lasted five-and-a-half years, but coronavirus will put an end to that.
Growth had been a little stronger across the premium sector of Perth’s housing market, with upper quartile hove values rising by 1% over the March quarter compared to a rise of 0.8% across the lower quartile of the market.
The local rental market continues to show a stronger than average performance, with weekly rents rising by 2% over the past year and rental yields also holding above average at 4.3%.
Hobart Property Market
Hobart was the darling of speculative property investors and the best performing property market in 2017- 8, and while dwelling values reached a record high in February 2020, its boom is now over and values have fallen slightly.
It’s likely the Hobart market will continue to lose its momentum over the year as it’s local economy is very dependant on tourism which is a sector of the economy that will suffer more than most.
Darwin Property Market
The Darwin property market peaked in August 2010 and is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.
Finally Darwin property values started to increase with a 2% rise in March, but the upward trend is unlikely to continue now.
Currently values are 31.4% below their historic peak and it is unlikely we’ll see these types of house prices again in the next decade.
The small size of the Darwin market makes it more susceptible to local events and Darwin typically has a higher and more variable vacancy rate, a product of a large transient working population.
Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.
Canberra Property Market
Canberra’s property market has been a “quiet achiever” with dwelling values having reached a new peak after growing 4.7% over the last year .
Considering a large percentage of Canberra population is employed by the government or industries supporting the public sector, Canberra’s property market is less likely to be affected by the upcoming recession than our other capital cities.
Our rental markets
Following a number of years of sluggish rental growth, rents have been rising this year and the team at Metropole Property Management were getting a record number of rental enquires.
While enquiries are still there and inspections of vacant properties can still occur, it’s likely that vacancy rates will now rise and asking rents will fall.
Other market indicators:
Vendor metrics had generally improved over recent months with the number of days to sell a property decreasing (a sign of the tight supply situation), vendor discounting decreasing (it’s easier for them to sell) and auction clearance rates started the year on a very strong note.
But now, discretionary buyers and sellers are out of the market and the number of new properties listed for sale has falling significantly and likely to continue to for the next few months until we are out of lockdown.
The RBA dropped “official interest rates twice last month, banks have been lowering their rates to new borrowers in order to “buy” business.
And first homebuyers were back into the market early this year, some taking advantage of government incentives while others experienced FOMO, watching property values increase faster than they could say for the deposit.
Interestingly, investor activity start the year off slowly.
What’s ahead?
It’s hard to make predictions.
Especially about the future.
It’s even harder to predict the end point of a moving target.
Yet, as someone who’s meant to know a bit about our property markets, I’m regularly asked how all this is going to play out?
What’s going to happen to the property markets?
Are house prices really going to crash like those doomsayers keep telling us?
Of course, I realise there are some commentators out there making predictions; but my answer is – I really don’t know!
I realise that’s not a satisfactory answer.
By the way…no one else really knows the answers either!
Yet at a time like this, most of us are looking for someone to tell them what’s going to happen next.
Of course I wish I had the answers. I really do.
All I can say is I don’t know.
I don’t know how this virus is going to play out, how long we’ll be in lockdown or what the economic fallout will be.
But there are a few things I do know and I suggest you read this blog to understand what’s ahead: Coronavirus crisis: I have no idea what will happen to property prices!
What I do know is that once we cross the proverbial bridge that the government is building for us, a property market will rebound again as they always have.
I also know that there’s a group of strategic investors and business owners who are positioning themselves for the future.
They recognise that there is currently a strategic window, the time between now and that survival to get set to take advantage of the opportunities that always abound after severe downturns.
As property investors they are working with their consultants to set up a strategic property plan, they getting their financial and ownership structures in place and doing the appropriate research.
They’re not trying to time the market, but they want to take advantage of the opportunities the market is currently and will in the future be offering.
These strategic investors know that people will eventually come out of lockdown and want to get on with their lives.
These strategically focused investors know it looks bad today, it might even look bad tomorrow, but they’re prepared to hang in there, they’re prepared to lay the foundations for their future success.
Despite the headlines, they know that the world will not going to end. They are prepared to bet on humanity.
They recognise that how they think and what they do between now and that survival line will determine their level of success when we move on to whatever our new normal will be.
NOW READ: Is now a good time to buy property?
In my opinion for those who have a secure job and their finances organised, this is a great time to buy a home or investment property at a price that you were unlikely to be able to get a couple of weeks ago when the property markets in big capital cities were booming and there were more buyers around than sellers.
It is likely that human nature will cause many would-be buyers to sit on the sidelines for a little while until things become more clear, which means that sellers will be more amenable to accepting offers rather than holding out for a top price.
Remember don’t make long-term decisions like buying a home or an investment property based on the last 30 minutes of news.
There is no doubt there will be opportunities in the market for those who are willing to go against the crowd and when they look back in a year’s time and definitely in 5 or 10 years’ time, they will remember the unprecedented events of 2020 as a great buying opportunity for property.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
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Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat.
Or call us on 1300 METROPOLE.
Source of graphs and data: CoreLogic.
from Property UpdateProperty Update https://propertyupdate.com.au/australian-property-market/
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