As the delta variant of COVID-19 has spread in Australia, Greater Sydney will soon enter the third week of lockdown.
With a low vaccination rate and slow vaccine distribution, temporary, pandemic-induced lockdowns may continue to be a norm for Australians through 2021.
This note highlights trends that emerged from the housing market amid COVID-19- induced lockdowns over the past 15 months, which might inform our expectations as to how the housing market is affected.
The report covers several key trends:
- Auction results across Sydney and Melbourne are considered in lockdown conditions.
The proportion of sold properties remained relatively resilient, particularly through circuit-breaker lockdowns, although a larger than normal number of auctions are typically withdrawn, postponed, or sold prior to the auction event during these periods; - Transaction activity slows markedly through lockdown periods, however, a ‘catch up’ in home purchases is evident as restrictions ease;
- Property values have remained resilient through lockdowns, and have seen strong growth as social distancing restrictions eased; and,
- The stability of housing market values is likely subject to extensive government stimulus and institutional support for the sector; a factor which is far less certain going forward.
Auction results have generally improved with each lockdown
Auction outcomes have gradually become more favourable to sellers through the lockdown.
This is seen across Sydney and Melbourne auction results over time (Sydney and Melbourne are the key focus for this analysis, as these markets have comprised approximately 85% of all capital city auctions held since the beginning of 2020).
Figures 1 to 4 show the outcomes in Melbourne and Sydney for all auctions collected by CoreLogic under different social distancing conditions, as well as the average weekly volume of auctions through each period.
The columns on the far left of each chart show 5 years’ worth of auction results before the onset of COVID-19, as well as auction results through various periods of restrictions.
A few observations can be made from the data:
Longer social distancing periods had far lower average auction volumes.
This is presumably a result of vendors and real agents being more selective about the kinds of properties they were confident in taking to auction. 
This is also reflected in lower rates of properties ‘passing in’, along with a larger number of canceled or postponed auctions.
The cancellation of auctions may reflect agents only auctioning properties during lockdown that they are confident will sell.
Across Melbourne, auction volumes were most depleted toward the tail-end of stage 4 restrictions, through September and October 2020.
This was partly because the property was harder to sell amid rules limiting physical home inspections and on-site auctions.
Additionally, an extended economic downturn across the state, and falling property prices, made selling conditions more challenging.
More properties are withdrawn through lockdowns.
As well as lower numbers of properties listed with an auction campaign, a higher portion of properties were withdrawn from auction altogether in periods of lockdown, either transitioning to private treaty listings, or a pause in the campaign.
Relative to the previous 5 years, the portion of withdrawn auctions has remained elevated in Melbourne and was somewhat elevated in stage 2 restrictions across Sydney.
For Melbourne, the proportion of auctions withdrawn became smaller with each lockdown.
Withdrawn properties are counted as an unsuccessful auction result, and as such have weighed on the clearance rate, even as a lower portion of properties had a passed-in result.
A higher portion of properties sold prior and sold after the auction during the lockdown.
For Sydney, the proportion of properties sold prior to auction increased from 23.1% over the past 5 years, to 28.0% during stage 2 restrictions, and 35.2% for the two weeks ending 4th of July.
Across Melbourne, the portion of properties sold prior to auction also increased with each lockdown.
Agents may have adapted to getting deals done prior to planned auctions, which may have become easier as property market conditions began to recover from October 2020.
More properties were also sold after the auction event during lockdown than the historic average, which again could be a function of the recovery in the market from October 2020, where auctions were more likely to eventually sell than pass in.
Circuit-breaker lockdowns saw a higher portion of properties sold ‘at’ auctions than longer restrictive periods.
Across both Melbourne and Sydney, shorter lockdown periods have seen a higher portion of properties sell ‘at’ auctions, as agencies have adopted and refined online or over-the-phone methods of hosting auctions.
Many real estate agents are now running both physical and online auction formats in parallel, making it easier for prospective buyers to participate in the auction event should restrictions be implemented.
Buyers may also have become more adept with these formats.
However, it is hard to separate the success of these online formats, with the fact that circuit breaker lockdowns have coincided with periods of much stronger housing market demand.
For the two weeks ending the 4th of July, Sydney has seen 74.6% of scheduled auctions achieve a successful result.
This was slightly lower than the previous week ending 20th of June when 76.8% of auctions saw a successful result, and below the previous 5 year period, where 77.2% of results have been successful.
Of the Sydney auctions that cleared through the past two weeks, 36.3% sold at auction, while 35.2% were negotiated prior.
Withdrawn auctions, which are counted as an unsuccessful auction result, represented 14.5% of auction outcomes for the week.
For the week ending July 11th, Sydney is expected to see relatively low auction volumes at 797 properties scheduled.
However, the clearance rate is likely to be buoyed by a higher portion of properties selling prior to the auction, and a pivot to virtual auctions.
With agents finding ways to navigate the auction market amid social distancing restrictions, the clearance rate is more likely to reflect market sentiment than being directly impacted by a shorter-term lockdown.
Demand declined during lockdowns, but so did the advertised supply
Through lockdowns, transaction activity has been far more volatile than sales values.
From March to April of 2020, which coincided with the onset of stage 2 restrictions nationally, the volume of sales fell -33.9% across the country.
The enormous decline in the number of sales was not only because properties became more difficult to purchase.
The initial economic shock caused by COVID-19 lockdowns may have lowered price growth expectations and pessimism around real estate performance.
This was reflected in the monthly ‘time to buy a dwelling’ index, a sub-component of the consumer sentiment index produced by Westpac and the Melbourne Institute, which fell -26.6% in the month of April 2020.
This sentiment was not helped by initial expectations for the property market, where consensus among banks was building that national property values could fall 10%, and worst-case scenarios suggested prices could fall by a third.
Ordinarily, such a sudden fall in demand would see greater vendor discounting and a fall in property prices. Instead, however, the new advertised supply also fell.
New listings added to the market declined -44.7% through the month of April 2020.
While it is true that home buying activity takes a hit during lockdowns, it is important to note that listings activity also declines, as homeowners recognise lockdowns are not ideal times to sell.
As noted in our initial response to the onset of COVID-19, we expected lockdown conditions to resemble ‘holiday periods’, where both buyers and sellers step back from buying and selling decisions.
However, it is worth noting that listings levels have largely remained subdued, even as restrictions have lifted, and COVID-19 case numbers have remained relatively low.
This is demonstrated in figure 5, which shows the national, rolling 28- day count of new listings through 2020, compared with the previous, five-year average.
Extended lockdowns, both nationally and across Melbourne, saw very subdued listings activity.
It was not until 2021 that new listings added to the market have trended closer to the historic average. Even so, new listings added to the market currently still do not match levels of demand.
Through 2021, as housing demand surged in recovery from COVID-19 lockdowns, CoreLogic has observed a greater volume of sales than new listings added to the market.
This has resulted in an especially low level of total advertised stock, where the total volume of listings across Australia is currently 139,897.
The previous 5 years' average level of total stock for this time of year is 201,442.
In shorter, circuit breaker periods of strict social distancing, vendor activity becomes temporarily subdued, but then seems to resume swiftly as lockdowns are lifted.
This is shown in the indices across figure 6. 
Each index tracks a rolling, seven-day count of ‘Comparative Market Analysis’ reports (CMA reports) generated by real estate agents using the RP Professional platform.
This has proved to be a leading indicator of new listings activity because these reports are used by agents to research property and pitch for new listings.
Looking at the index for South Australia, CMA activity saw a decline of -42.4% from the 12th of November to the 22nd of November, as Adelaide went into a three-day lockdown.
CMA activity can back swiftly.
Although report volumes did not see full recovery within one week of the lockdown lifting, this is likely because it coincided with a seasonal decline in transaction activity, which regularly occurs toward the end of the year.
Looking at Victorian CMA activity through Melbourne’s circuit breaker lockdown (between the 13th and 17th of February 2021), the volume of CMAs generated had seen a full recovery in report volumes within one week of the lockdown lifting. Interestingly, the decline in CMA generations has not been as severe across NSW as of yet.
Since the start of the Sydney-wide lockdown, the rolling seven-day count of CMAS has fallen -10.1% through to the 6th of July, potentially reflecting the fact that private property inspections are permitted under the social distancing rules.
CMA activity may fall further as the lockdown is extended to the 16th of July.
Lockdowns were followed by ‘catch up’ dwelling purchases
One of the extraordinary elements of housing market performance in recent months has been strong sales volumes.
In the 2020-21 financial year, CoreLogic estimates there were approximately 582,900 transactions nationally, compared to a decade average annual volume of 455,346.
This is the highest annual sales volume observed since February 2004.
In the context of closed international borders, it is perhaps difficult to fathom where the additional demand has come from. 
Arguably, demand among first home buyers, which demographically are currently in very high numbers, has been brought forward due to various government incentives such as the first home loan deposit scheme, HomeBuilder, and various other state-based grants and stamp duty discounts.
Record low mortgage rates have also been a key factor in stoking housing demand, potentially spurring pent-up demand from prospective buyers who would have otherwise remained inactive.
Another source of housing demand in the past 12 months may well be the sales that were postponed, or made more difficult, through the first half of 2020 due to COVID-19 restrictions.
Figure 7 shows dwelling sales volumes nationally through 2020, with the exception of Victoria, where lockdowns extended and further impacted sales volumes in the second half of 2020.
Outside of Victoria, there is a clear asymmetry in sales volumes in the first and second half of 2020, which is not as pronounced in the average monthly sales volumes over the previous 5 years.
Sales volumes fell -10.1% between February and March 2020, where the 5-year average shows sales volumes would typically increase 12.2% around this time of year.
Between March and April 2020, sales volumes fell a further - 31.5% across Australia (excluding Victoria), beyond the -13.3% that sales volumes would typically decline over the month of April.
Assuming these months had followed recent average changes in volume, there were 18,000 fewer sales in this period due to COVID-restrictions. 
As restrictions started to ease, the monthly growth rate of sales from May to December 2020 averaged far higher than typical monthly growth rates in the previous 5 years (figure 8).
Again, Victoria did not follow this trend due to extended lockdowns in the second half of the year.
Assistant Governor with the RBA, Luci Ellis, noted in a recent address that durable goods appeared to have seen a ‘catch up’ in consumption after social distancing restrictions have eased because the timing of durable goods purchases can shift to periods after lockdown.
This was noted particularly in the case of motor vehicle sales. It is reasonable to assume that for a sizeable financial and temporal commitment such as housing, a period of lockdown is unlikely to deter a housing purchase altogether unless household income is severely affected.
Therefore, a similar phenomenon may be expected in the housing market.
Additionally, consumers may have been more incentivised to purchase housing following the end of stage 2 restrictions, as the households saved 22.0% of income through the June 2020 quarter (compared to a then decade average of 7.0%), and a range of government incentives was introduced for the purchase or construction of new homes.
This has likely been a key part in the recovery of sales volumes across Melbourne, where temporary stamp duty discounts are thought to have created a surge in sales up to the 1st of July.
Ultimately, the months following lockdowns have not only resulted in a resumption of sales activity but potentially the additional sales that would have otherwise transacted during lockdown periods.
This phenomenon was only exacerbated as restrictions eased across Melbourne and Victoria in the final quarter of 2020, as seen in the national sales volumes including Victoria in figure 9 below.
Since the start of 2021, each month of sales has been extremely elevated on the 5-year average.
In the current environment, there is likely to be a jump in sales activity as restrictions ease across Sydney.
Temporary additional stamp duty discounts for new homes across NSW expire on the 31st of July, and the current lockdown may make it more difficult for some people to meet the deadline.
However, there are plenty of places still available for the first home loan deposit scheme (indeed, tens of thousands of additional places have been made available for low-deposit home loan schemes), which may continue to draw forward first home buyer demand across Sydney as restrictions are eased.
Housing market values did not ‘crash’, but institutional responses played a key role
Another central theme of CoreLogic reporting through the pandemic has been the relative stability of property values.
Nationally, values saw a peak-to-trough decline of just -2.1% through 2020, before a recovery trend in October 2020. 
While the housing market declined -2.1% at the national level, different dynamics played out across the capital cities.
Figure 10 shows how dwelling values across the capital cities have changed since March 2020, which marked the onset of stage 2 restrictions nationally.
In Melbourne, where economic conditions were weakened through extended lockdowns, the peak-to-trough decline in dwelling market values was -5.6%.
Although the Melbourne dwelling market as a whole has since recovered this lost value (and is a new record high), there are pockets of the market where rent values remain far lower than pre-pandemic levels, and values remain more subdued.
Across smaller capital cities, dwelling values were virtually untouched by the pandemic, if not further fuelled by low-interest rate settings.
With a tight labour market and low COVID-19 case numbers, Canberra did not see a single month of dwelling value decline amid lockdowns.
Canberra has continued to hit a fresh record high value every month since September 2019.
As the housing market commenced a recovery trend, we noted several factors could be attributed to the mild downturn and swift recovery, including:
- Record low mortgage rates;
- An engineered economic downturn that had a swift recovery;
- Low listings volumes; and, perhaps most importantly;
- Enormous levels of government and institutional support.
In fact, many of the factors that saw resilience in the housing market can also be tied back to the government and institutional response to the pandemic.
The swift economic recovery was helped by programs like JobKeeper, which made it easier for people to return to work by maintaining employment relationships.
Mortgage repayment deferrals were likely a key factor in reducing new listings added to the market, which may have otherwise been fuelled by an inability to make mortgage payments.
ABS data showed the largest tenure type of JobKeeper recipients through September 2020 were homeowners with a mortgage (50.4%), so it is likely government support payments also supported housing costs. 
The importance of these policies is recognised even in a three-week lockdown, with the NSW treasurer writing to his federal counterpart, to request a temporary reinstatement of JobKeeper payment through the lockdown.
This request was denied, though commonwealth assistance is reportedly available to individuals where income has been impacted by lockdowns, and the NSW government has begun rollout on a small business support package.
Additionally, some banks are considering “payment breaks” on loans for those who can demonstrate hardship amid the Sydney lockdown, though with a more tailored, selective approach than the broad brush loan repayment deferrals offered through 2020.
Ultimately, there has not been as strong of a government and institutional response to the current lockdown conditions when compared to extended lockdowns last year.
This may not affect the majority of homeowners, or potential homebuyers, across NSW over a three-week period. Housing markets have already proved resilient amid circuit breaker lockdowns.
The key unknown then becomes how long will the current Sydney lockdown actually last.
Housing market conditions could be weaker amid an extended lockdown that does not see the same strong institutional response as was seen last year.
