Despite a sharp drop in market activity and a severe weakening in consumer sentiment, home price rises were recorded across most capital cities, driving national house prices up 0.3 per cent in April.
But the national monthly pace of growth more than halved, dropping from 0.7 per cent in March.
House prices saw their smallest month-on-month gain since June last year, when the national index was down 0.2 per cent.
“Although housing values were generally slightly positive over the month, the trend has clearly weakened since mid-to-late March, when social distancing policies were implemented, and consumer sentiment started to plummet,” CoreLogic head of research Tim Lawless said.
However, while sale prices continued to edge up, the number of home listings was 35 per cent lower at the end of April relative to the same time a year ago and 43 per cent below the five-year average.
Industry activity has been hit hard by the drop in active buyers and sellers, as well as policies preventing open homes and onsite auctions.
Activity across CoreLogic’s ‘RP Data’ platform, where the majority of Australian real estate agents undertake their research to prepare a property for sale, was down by around 60 per cent prior to Easter.
Regional markets outperform cities
The capital city markets generally showed a weaker performance relative to the regional markets. The combined capital cities index was up 0.2 per cent in April compared with a 0.5 per cent rise across the combined regional markets.
Melbourne was one of the biggest drags on the index, where values fell 0.3 per cent for the month.
Sydney values remained positive, but rose just 0.4 per cent over the month.
Compare this to six months prior to March when both cities were averaging a monthly growth rate around 1.7 per cent.
“There’s a few reasons Melbourne and Sydney are moving into negative territory,” Mr Lawless said.
“In many ways they were overvalued before moving to this period of disruption.”
Mr Lawless said these two key markets also had greater exposure to stalling overseas migration.
“Rental markets have much more exposure as well, particular in inner-city rental markets,” he said.
Hobart was the only other major region to record a decline in home values over the month, down 0.1 per cent.
“Hobart has the most exposure of any capital city, at least proportionally, to the industry sectors most heavily impacted by COVID-19 in terms of employment, with 12.7 per cent of the workforce employed within accommodation and food services, and arts and recreation services,” Mr Lawless said.
Despite weaker conditions, some cities saw home price growth accelerate in April. Perth (gained 0.2 per cent), Adelaide (grew 0.4 per cent) and Darwin (up 1.7 per cent) all outperformed their six-month average pace of growth in April.
‘Wait to see the storm out’
The most expensive housing markets are slowing the fastest.
Quarterly gains across the top quartile reduced from 6.6 per cent late last year to 2.4 per cent over the three months ending April.
Melbourne’s upper-quartile market fell 0.8 per cent in April while the lower-quartile and middle of the market continued to record a subtle rise in values over the month.
Mr Lawless said it often took time for house prices to catch up with the financial devastation taking hold in other parts of the economy.
“You generally don’t see housing values responding quickly at all … given the long settlement periods and very high transactional costs,” he said.
“My guess is we will probably see homeowners trying to wait to see the storm out.”
Mr Lawless said the fact that lenders were giving leniency to distressed borrowers meant the extent of mortgage stress may not show until year’s end.
“So chances are we still see housing values remain relatively resilient to this downturn as long as it [coronavirus] is contained within three to six months,” he tipped.
Some economists have predicted a 30 per cent fall in house prices, but Mr Lawless said that was “extreme”.
“Our house view is we probably would see housing values fall by more than 10 per cent from peak to trough,” he said.
“The virus curve has been flattened much more quickly and effectively than anyone would have imagined.”
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He said if governments gradually lift social distancing restrictions, “that’s a positive sign that we might be returning to economic activity sooner than expected, which might flow though to housing values”.
AMP Capital chief economist Shane Oliver said if the shut down extends beyond six months, or there is a second wave of coronavirus cases after an initial easing in the lockdown, house prices would likely plummet.
“It will overwhelm the ability of the JobKeeper program and the bank payment holiday to protect the economy and the property market and hence average home prices could fall 20 per cent or so,” he said.
“This is looking less likely, but it’s a risk.”
But if the shut down starts to be eased through this month, then Shane Oliver agrees with Tim Lawless that the fall in average property prices is likely to be about 10 per cent.
“As the six-month wage subsidies and bank payment deferrals will have been long enough to protect the economy and hence the property market,” he explained.
“This would just take prices back to where they were around the middle of last year.”
He tips that most capital cities would see falls of 5 per cent, whereas Sydney and Melbourne would see higher falls of 10 per cent to 15 per cent price as these cities were “more vulnerable due to much higher debt levels, higher home prices, a greater dependence on immigration and a potential supply overhang in Sydney”.
Rental market, investors will be hit harder
Mr Lawless said given unemployment was highest in the casualised workforce, and they typically are not homeowners, the rental market would suffer sharper falls of around 15 per cent or more.
“We could see rents nationally falling beyond 15 per cent from peak to trough, and much more than that in markets like Melbourne, Sydney and Hobart,” he said.
“When you look at industries where job losses have been the highest, and the industries most impacted, its hospitality and food services, its arts and recreation.
“And student rental demand is very low at the moment, so that will be impacting on inner-city rental markets.”
Rents were down over April across seven of the eight capital cities, with the largest falls in Sydney (down 0.7 per cent), Canberra (down 0.7 per cent) and Melbourne (down 0.5 per cent).
Perth, where rental conditions have been tightening for several years, was the only capital city to see a lift in rents over the month (a 0.1 per cent rise).
Unit markets have shown a weaker rental performance, with capital city unit rents down 0.9 per cent in April compared with a 0.3 per cent drop in house rents.
Rental yields have slipped over the month, reaching a new record low of 2.92 per cent in Sydney.
Mr Lawless said it was “not a good time to be selling your home at all”, and expected people would wait to sell until after social distancing policies are lifted.
“I think most lenders would be very unwilling to test the marketplace at the moment, at a time when consumer sentiment has plummeted,” he said.
He said, while construction of dwellings is still progressing amid COVID-19, the building sector is facing challenges to productivity as sites were being adapted to ensure the health and safety of workers.
“The slowdown in [building] approvals will have a lagged impact on available projects for construction companies down the line,” he said.
“Additionally, state governments will experience a budgetary hole from less stamp duty as transactions decline, and some retail items such as home furnishings, appliances and white goods may see a decline, with sales likely to suffer until housing market activity starts to recover.”
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