Well we’re halfway through the year, and what a six months it’s been.
No one started 2020 thinking we’d have a triple whammy of a world pandemic, Australia slipping into recession and experiencing so much social unrest.
Despite all those matters have been making the headlines over the last month, our property markets have shown considerable resilience.
In today’s more in-depth beginning of the month Property Insiders chat, Dr. Andrew Wilson, Australia’s leading housing economist gives a detailed look into what’s happening to property around Australia.
We also discuss:
- Sydney property market is swollen with 30,000 empty rentals
- The International Monetary Fund’s economic forecasts which were positive for Australia
- Wild claims that a second wave of coronavirus in Melbourne and will cause property prices to drop 30%.
- Consumer Confidence is slipping
- What’s happening to unemployment
Sydney property market swollen with 30,000 empty rentals
There are currently more vacancies in Sydney’s rental market than ever before, according to Dr. Andrew Wilson.
More than 30,000 homes and apartments are available for lease in Sydney.
The collapse of short-term rentals including AirBNB, combined with a drastic drop in students seeking accommodation, is driving the vacancies.
More than 7,000 apartments in Sydney’s CBD and Eastern Suburbs are available, with 4000 apartments in the Inner West and a further 3200 in the Western Suburbs.
The collapse of short-term rentals, combined with a drastic drop in students seeking accommodation, is driving the vacancies up.
Consumer confidence has slipped
Not surprisingly, ANZ-Roy Morgan Consumer Confidence dropped 4.5pts to 93.0 this week – and is now at its lowest for over a month since May 23/24, 2020 (92.7).
Of course, consumer confidence is a good indicator of the confluence of a whole range of economic conditions including job and financial security, and is clearly influenced by the messages the media is feeding them.
And the way people feel about their future will determine how much they’re prepared to spend not just on big items like real estate and other big-ticket items, but also on the day-to-day living.
International Monetary Fund Economic Forecasts
Clearly the economy has been making headlines this month and have been some spectacular ones.
The Australian Financial Review lead with the International Monetary Fund painting a bleak pandemic picture.
But when you read further, you’ll see that Australia will be a star performer.
The IMF has downgraded its expectations of the world’s economic performance, forecasting the global economy will contract at 4.9% in 2020 (previously, April – 3%), then next year, the world economy is tipped to grow at 5.4% (previously April, 5.8%.)
The IMF is ruling out a V-shaped recovery our economy, but that’s in line with what we’re saying suggesting a staggered or staircase type recoveries without a full recovery to our international borders open.
For Australia the IMF expects our economy to:
- Drop by 4.5% in 2020 – a better outcome than 6.7% contraction forecast in April, then…
- Grow by 4% in 2021, which is huge compared to recent experience. Trading Economics says “Through the year to Q1, the economy grew 1.4%, after a 2.2% expansion in Q4”. So a 4% surge next year would be a ripper. International Monetary Fund.
CommBank Group economists tip a 3.2% fall in the global economy in 2020 and then a 4% lift in 2021.
In Australia the economy is tipped to fall 3.9% in 2020 before recovering 3% in 2021.
The recovery in Australia will be restrained by drying up of external migration, affecting tourism education and our property market.
The bank assumes Australia’s governments and the RBA will live up to the promise of “doing whatever it takes” to restore the economy to full health.
The labour force data for May were an economic train wreck.
Official data from the Australian Bureau of Statistics shows that the unemployment rate rose to 7.1 percent in May, although this only covered the first two weeks of the month.
But if you dig more deeply into the figures the real unemployment rate may in fact be much higher than that.
Here is the snapshot of what’s happened to employment since February:
- Employment has fallen by 838,000.
- The number of people counted as unemployed has risen by 231,000.
- The number of people underemployed has increased by 527,000.
- The number of people who have dropped out of the labour market is 673,000.
- Taken together, the proportion of the working age population ‘under-utilised’ is around 25 percent. Treasury estimate the peak unemployment rate during the Great Depression was 19.9 percent.
Roy Morgan research shows that the unemployment rate was 14.8 percent for the whole of May.
They provide a much more accurate and far more timely jobs and jobless data a full two weeks before the ABS.
The really encouraging indication in the Morgan numbers is that the jobless rate fell slightly from April to May.
This suggests that jobs picked up quite sharply from the first half to the second half of May.
So why isn’t the unemployment data telling a story of staggering like the jobs data?
Because the unemployment data only counts people who were actively looking for work.
A lot of people who lost work in April didn’t bother looking for other work.
They knew there was none to be found.
And so what happened was our participation rate – the share of working age Australians actually working or looking for work – fell sharply.
And don’t forget that JobKeeper has sticky taped our economy together propping up 3 million jobs.
The ABS notes that if all of the 835,000 who lost their jobs in the past two months had actively sought work the unemployment rate would be 11.3% by now.
The most recently reported data was for May, and while this data would normally be considered current, given that many parts of the economy have reopened in the past few weeks, and more parts are expected to reopen in the coming weeks, to some extent the unemployment data is ancient history.
Job slumped over March April and May as business is with you to hibernation but you’re going to expect it from this month as businesses reopen and workers rejoin employers
There has been a significant increase in job ads on line portals over the last month.
After falling by around 70%, SEEK reports job advertising has lifted across its platform since mid-April with job ads now 68.3% of pre-pandemic levels.
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 not as meaningful, partly because there are not that many auctions being held and partly because we’re not sure about the new “online” auction sales.
Currently more properties are being withdrawn from sale prior to auction auction, but it seems that vendors are starting to feel more comfortable selling their properties at auction and around two thirds of all properties put to auction and sold every weekend.
New homes listing index.
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 the Queen’s Birthday long weekend, 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, and this trend is once again rising as is the total number of property transactions.
Similarly, the Sydney property market has taken COVID-19 in its stride and is becoming increasingly active.
New listing per buyer ratio
Dr. Wilson has introduced a new listings per buyer ratio Do you have an indication of the supply and demand ratio in the market.
The chart below shows that while there are many more properties being listed for sale in Brisbane compare to the number of buyers transacting, the ratio is tighter in Sydney and Adelaide
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.
Chart below shows the resilience of the market, even though Sydney asking prices have dropped over the month.
This is in part because of the mix of properties being sold, with more expensive properties not coming to the market at present, thereby lowering the overall mix of asking prices meaning a lower median asking price.
The asking price for units – apartments has remained steady over the month
The rental markets
Obviously our rental markets have been 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 has led to higher vacancy rates for apartments, particularly in Melbourne in Sydney, and particularly in and around their CBD’s.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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