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Coronavirus derails the housing recovery - featured image
By Michael Yardney

Coronavirus derails the housing recovery

After our property markets finished 2019 strongly we commenced 2020 with high hopes for real estate.

However COVID-19 has derailed the recovery in house prices throwing most of the forecasts made at the beginning of this year out the window.

ANZ Bank has amended its forecasts citing weaker Home Prices Risinghousehold income, sharply rising uncertainty for households, reduced population growth, and much weaker investor demand (given the collapse in the rental market) as some of the factors that will depress our housing markets over the next year or so.

ANZ suggest that while the deferral of home loan repayments will help prevent forced sales, the decline in demand will push prices down around 10% (peak-to-trough) on average across the capital cities.

ANZ anticipate prices will bottom out in mid-2021, before a modest recovery on improved affordability.


I don't disagree.

However the problem with making these type of forecast is lumping all properties together.

Not all property market will be affected equally, and while I don't disagree that "overall" our property market could easily fall 10%., in the short term:

  • “Investment grade” properties and A grade (above average) homes could fall in value by around -5%
  • B grade (average) homes could fall in value by up -10-15%,
  • C grade (less than perfect) will be the hardest hit as there will be a flight to quality.

But this will be on a on very low levels of transactions and the pace of recovery from that point will depend on the state of the wider economy.

The worst affected residential markets will be:

  • Apartments in high-rise towers – in fact this is these properties are likely to be out of favour for quite some time.
  • Off the plan apartments and poor quality investments stock (as opposed to investment-grade) apartments, particularly those close to universities.
  • Outer suburban new housing estates house and land packages, where young families are likely to have overextended themselves financially and with many people will be out of work for a while
  • Properties in the blue-collar areas.

Here are more details form ANZ's recent Australian Housing Update...

COVID-19 is likely to have a substantial impact on housing construction.

The uncertain income outlook and the sharp reduction in population growth will curtail demand from both owner occupiers and investors.

The likely pullback in investor demand, given very challenging conditions in the rental market, will also weigh on the outlook.

Housing construction was already falling.

We expect approvals to take another leg down over the next six months, consistent with the decline in both the ANZ-PCA survey construction index and the Ai Group new orders index.

ANZ expect construction activity to decline another 15% through 2020-21, bringing the cumulative peak-to-trough decline to 25%.

The rise in the unemployment rate, the drop in hours worked and the associated crunch in household income will put households under financial pressure.

Access to the JobKeeper payment and superannuation savings will help to mitigate this somewhat.

Mortgage repayment deferment will also help with mortgage debt.

But around one-third of mortgage holders have less than one month’s prepayments, leaving them at risk from a sharp decline in income.

Households that are renting are likely to come under particular pressure.

A higher proportion of renters are employed in sectors more exposed to the COVID-19 shutdown measures and are more likely to be casual workers.

House prices set to reverse

ANZ suggest that the coronavirus shutdown measures are likely to significantly impact house prices.

The deterioration in household income will be the biggest driver of weakness.

UnemploymentANZ expect unemployment to rise to just under 10%, the highest since the early 1990s’ recession.

But this does not capture the scale of the loss of income, with households across the income and industry spectrum experiencing cuts to hours and wages.

Already, nearly a third of Australian households have reported a deterioration in finances due to the pandemic.

This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home.

Reduced population growth, as a result of the border closures, will also constrain demand.

This is especially the case in Sydney and Melbourne, where the bulk of population growth comes from net overseas migration.

Investor demand is likely to be hardest hit in the current environment.

House PriceWith the rental market under pressure from reduced demand and increased supply, the incentive to invest in property will be low.

While the deferral of home loan repayments will help prevent forced sales, the collapse in demand in the face of the extremely uncertain outlook will drive prices lower over the next year or so.

ANZ expect a peak-to-trough decline of 10% on average across the capital cities, with the sharpest falls in Sydney (-13%), Melbourne (-13%) and Hobart (-13%).

ANZ expect the Perth market to perform the best with a decline of just 2% expected.

Prices in Brisbane (-7%), Darwin (-7%), Adelaide (-6%) and Canberra (-5%) are all expected to fall solidly.

ANZ anticipate prices will bottom out in mid-2021 as affordability improves, but the recovery is likely to be relatively gradual given that unemployment is expected to remain above 7% until 2022.

Auction indicators have slumped, partly in response to the shutdown of open homes and live auctions

Auction clearance rates have been falling over the last month- but of course they have been since very few auctions are being conducted, and those that are are proceeding are online options rather than open air auctions.

In my mind trying to make future forecasts based on these types of auction clearance results is meaningless.




Prices and finance are beginning to turn over, while house price expectations have fallen sharply

Clearly price growth has slowed significantly, but property values haven't slumped.

On the other hand, there is an expectation of further falls in house prices due to slow consumer sentiment.



Source: ANZ Housing Market Update May 2020 which was provided for ANZ Institutional, Markets and Private Banking clients.
The information is general in nature and does not constitute personal financial product advice or take into account your objectives, financial situation or needs.

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Australian Property Market Update, May 2020 | Property Insiders [VIDEO]

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About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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