The media has been busy this week.
And I’m not just talking about headlines like: “We’re In Recession!”
Initially, the messages were things like … 
- COVID crisis triggers the first fall in property prices
- The COVID Correction Begins …
And the one that is likely to have attracted a lot of click bate earlier this month would have been …
- Warnings of enormous poverty as banks forecast property market correction
But the Negative Nellie’s are wrong – our property markets are not crashing, they’re showing resilience.
And there are some positive signs for our property markets.
- Australia is coming out of its lockdown earlier and better than expected.
- And restrictions on our property markets are already starting to ease. After a marked fall in March and April the number of property transactions occurring started to pick up in May and should continue improving.
But there is still plenty of bad news to come and it’s the indirect economic effects of the Coronavirus economic cocoon that will determine what happens to property prices moving forward.
Things like how much lasting damage is done to our economy, what’s going to happen to unemployment, household incomes and consumer confidence.
It is likely that the Australian economy will record a recession this year, for the first time in 30 years and even though the economy should bounce back in the second half of this year the unemployment rate is likely to remain high for a number of years.
So what’s happening to our property markets this month and what is ahead.
That’s what I discuss in this this video with Dr. Andrew Wilson, Australia’s leading housing economist and Chief Economist of My Housing Market.
We’re in Recession
Well… we are technically not in a recession, we haven’t had two quarters of negative growth, but they’re the words our treasurer used.
The 0.3% decline in GDP over the January quarter (only reported now) was broadly in line with market expectations.
This is the first decline in GDP since 2011, at the height of the European debt crisis.
But it is just a taste of what’s to come, with Quarter 2 growth set to drop sharply.
A sharp fall in consumer spending (-1.1%) was the key contributor to the weakness, while housing construction (-1.7%) and business investment (-0.8%) also fell.
Public sector spending rose 1.4% q/q driven by strong consumption across both state and federal governments (adding 0.3ppt to GDP growth). 
Net exports added 0.5ppt.
By industry, the weakest sectors were, again not surprisingly, hospitality (-7.6% q/q), and transport services (-4.9%). These falls likely represent not just the initial impact of the COVID-19 shutdowns, but also the effect of the summer bushfires.
Manufacturing was the strongest industry, with output rising a solid 2.1% in the quarter.
The recovery is unlikely to be the V-shaped people are hoping for, and further stimulus will likely be required to support growth over the next year or so.
Our Property Markets
It has been an interesting year so far with many challenges.
It started with tragic bushfires that are long forgotten as they were replaced with a Global pandemic.
This led to an economic lockdown and much of the Australian economy is being kept on temporary life support, either via the federal government’s JobKeeper and JobSeeker schemes or loan repayment relief from banks.
What followed was uncertainty, pessimism, fear and falling consumer confidence in March and April.
But with lockdown restrictions easing, Australians are now becoming more optimistic and consumer confidence has risen for the 9th week in a row.
Nine weekly gains in a row is unprecedented. To be fair, though, so was the depth of the starting point.
More good news about control of the pandemic and the consequent relaxation of restrictions is key to the lift in sentiment.
Expectations of residential housing stimulus and lower petrol prices may also be playing a role.
At the same time Australians are starting to spend more.
A bright spot for our economy, as the 3 charts below show we are spending more as lockdowns ease.
ANZ Bank found that we’re starting to spend more on shopping and groceries.
And we’re using cards more than cash.
So there are many signs that people are more optimist about the future, and it should be that way because what better nation in the world to live in than Australia right now?
Especially when we see what’s happening around the world.
And we should be thankful that the Government had the money in its coffers budget to be able to invest in stimulus, to keep our economy moving and build a bridge to the other side of this health and economic crisis.
RBA’s decision
As expected, the Reserve Bank Board kept the cash rate and three year bond rate target on hold at its June meeting.
The Reserve Bank has held out hope the economic downturn might not be as severe as feared. 
Now at the time of recording this the GDP figures have not been released, but it is likely they will confirm the economy is in the first recession since the early 1990s.
But RBA Governor Philip Lowe noted that the declining infection rates in many countries and the easing of restrictions, if that were to continue, meant a recovery in the global economy could get underway sooner than initially anticipated.
However, the Governor rightly observes that the outlook remains highly uncertain with the pandemic likely to have long lasting effects on the Australian economy.
But now that the RBA will be sitting on its hands for an extended period now after it introduced a package of measures in March in response to the COVID-19 crisis.
So with the RBA unlikely to intervene in coming months, Australia’s economic recovery is now in the hands of the federal and state governments.
The RBA stated that it,
“will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band… It is likely that this fiscal and monetary support will be required for some time”.
Home Builder Program
Adding to the massive fiscal stimulus already announced, the Australian Government has announced a $680 million housing package designed to stimulate the residential construction sector.
The HomeBuilder package includes grants of $25,000 for owner-occupiers who are:
· building a new home to the value of $750,000
· doing a renovation worth between $150,000 and $750,000.
The scheme is available for singles earning less than $125,000 or couples earning less than $200,000.
The program will run from 4 June until to 31 December, and construction must commence within three months of the contract date.
At $25,000, this is a substantial grant, and will provide some support to the residential construction sector.
While off-the-plan apartment sales are eligible, the short time frame of the program suggests that detached house building, rather than multi-unit dwellings, will be the main beneficiary.
The dollar spend is quite low by fiscal package standards, but it is the limited time frame of the program that will act to bring forward some additional private spending on residential construction in the short term, and go some way to plugging the emerging hole in residential construction activity.
Housing Price Update:
The CoreLogic home value index, covering the eight major capital cities, declined 0.5% in May, the first monthly fall since June last year as the economic impacts of the coronavirus pandemic take its toll.
But Australia’s property market look like they’ll be in for a softer landing than projected by the property pessimists.
Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction.
With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.
Our low-interest rate environment is one factor helping to support the housing markets, with many owner-occupiers paying mortgage rates less than 3% and investors experiencing the lowest mortgage rates in history.
At the same time, reports are emerging of banks offering extended interest-only periods and allowing customers to pivot to interest-only repayment schedules.
I know some are suggesting the property market will fall off a cliff in September when these mortgage holidays and government stimulus packages come to an end, but I can’t see that happening.
The government isn’t going to have spent so much time supporting the economy in the housing market to allow this to occur.
I see it more likely that this kind of policy is likely to become more widespread later this year, as ‘mortgage holiday’ periods end and government stimulus measures taper.
Such a low cost of debt, along with improving consumer sentiment and an easing in social distancing policies were factors supporting an 18.5% rise in housing activity through May, after-sales plunged by about 33% nationally in April.
The low rate setting and improving level of market activity also partially explain why housing values have fallen by less than half a percent through the COVID-19 crisis to date.
What’s happening to property?
Auction clearance rates.
Traditionally auction clearance rates have been a good indicator of real-time market sentiment, but now the figures are meaningless and will remain so till we get a larger number of sales by auctions.
However, here are last Saturday’s results, for what they are worh.
New homes listing index.
As opposed to previously quoted indexes which quote the total number of properties currently on the market, Dr Wilson has developed a New Listings Index, which reports the number of new properties that are put on the market for sale each day and reports this weekly.
This is a “real-time” indication of vendor current vendors sentiment.
Using 1st March 2020 as a baseline of 100, before social distancing was strictly enforced, the following chart shows the number of new properties listed for sale initially dropped, falling by almost 50%.
No surprise here. Discretionary sellers were on strike waiting to see what’s going to happen to the markets.
But since then, following the seasonal slump around Easter and Anzac Day the number of new properties listed for sale has been increasing, showing increased confidence among vendors.
The following chart shows that Brisbane vendors seem to have more confidence in selling their properties than sellers in other states.
However, this chart shows that Melbourne vendors are back in the market over the last week, listing their properties for sale
How many properties are actually selling?
Dr. Wilson has now started publishing his MyHousingMarket weekly sales index.
As you can see from the following chart, at the beginning of the year sale by auction was popular in Melbourne, but currently very few properties are selling at auction, however with the lifting of restrictions this will change moving forward.
Clearly transactions are still occurring with the index higher than February 1st, but not as high as at its peak at the end of February.
Similarly, the Sydney property market has taken COVID-19 in its stride and he still very active.
What’s happening to asking prices?
Another useful real time index is “Asking Prices.”
In the past asking prices have proven to be an accurate reflection of future sale prices, but give an indication of what’s happening in the current market, rather than having to wait 60 or 90 days for a property to be eventually sold and reported.
Currently asking prices have had little movement, suggesting vendor confidence remains and this has been reflected in the core logic end of month figures suggesting only minor falls in property values.
Interestingly asking prices in Brisbane are firming suggesting vendors in Brisbane have confidence in selling their properties in the current climate.
The rental markets
Obviously our rental markets will also be affected by the COVID-19 Cocoon –with prospective tenants are not as active in the market at present. 
Some are bunkering down sharing with their friends, while others have gone home to the comfort of mum and dad’s home
At the same time more properties have become available for lease.
Some of these are were previously being leased to short-term tenants on AirBnB, while others have become vacant as many overseas students have not come back a present to take on the university studies.
This initially lea to higher vacancy rates for apartments, particularly in Melbourne in Sydney, but there has been an improvement recently with rents firming as vacancy rates are falling a little.
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NOW READ:
An Economic Forecast for the COVID-19 Recovery (2020-21) Animated Map
State by State Guide to the Governments’ Coronavirus response to Property Investors and Tenants
from Property UpdateProperty Update https://propertyupdate.com.au/monthly-housing-market-commentary-video/
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