On May 17th CoreLogic provided information exploring property value performance against a declining economy, as businesses were closed and people lost their jobs.
The findings were:
- Negative economic shocks do not necessarily lead to severe declines in property prices;
- Property does not see the same declines as shares during a downturn, because it is used to live in and therefore not as speculated upon as shares; additionally, it cannot be bought and sold as quickly as shares, meaning price movements are not as volatile;
- Due to the temporal nature of the COVID-19 downturn, vendors may hold high expectations for their property value and simply hold off selling until the economy returns to full-scale production;
- The current high level of household debt amplifies the risk of an adverse change in household circumstances such as loss of income, unemployment or illness on housing market conditions; and,
- The number of property transactions have seen more drastic declines in response to economic shocks, and could be even more affected amid the COVID-19 downturn.
To date, housing values have only shown a mild slowdown with capital city housing values fall by less than half a percent over a month.
CoreLogic modelled sales volumes suggest that across Australia, residential property sales declined about 40 per cent over April.
The magnitude of decline was fairly uniform across different parts of the country, and was driven by a decline in consumer confidence.
This low level of listings signals a lack of distressed sales flooding the market.
In other words, not many people are selling, because not many people have to sell.
It is likely that reprieve on mortgage repayments has protected people from distressed sales, at a time of rising unemployment, falling wages and falling numbers of hours worked. It may be interesting to see how the market moves over the next several months as mortgage deferrals and government support are wound down – significant investment into infrastructure may be required to stimulate the growth required to sustain market values.