Where housing affordability is headed post-COVID

Where housing affordability is headed post-COVID

There’s nothing like a global health crisis to create shockwaves through an economy. While the Australian real estate market hasn’t escaped the drama of COVID-19, property prices haven’t exactly fallen off the proverbial cliff like so many people predicted back in March. That doesn’t mean, however, that there isn’t opportunity out there for buyers.

“With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected,” said CoreLogic head of research, Tim Lawless, several months into the pandemic. Property experts all agree that the potential blow to house prices has been cushioned by record low mortgage rates, home loan repayment holidays and government handouts helping owner occupier purchases. As a result, the decline in Australian dwelling market values was just 0.8 per cent in the three months to June.

Most declines seen across the board have been driven by capital city markets, where values fell a collective 1.1 per cent in the June quarter. As buyers consider lifestyle changes and work from home options, regional markets have been the clear winners when it comes to price stability and increases with a slight, but positive move of 0.3 per cent over the same period.ⁱ

The COVID-19 effect

So far, the impact of the pandemic on property markets has been more about social distancing and lockdown effects, rather than value declines. CoreLogic data throughout the pandemic period has shown that transaction activity slowed right down in response to COVID-19 restrictions.

“The resulting loss of employment, lower consumer sentiment and border closures have had a much larger impact on the number of properties marketed and sold, than property prices themselves,” said Eliza Owen, head of Australian residential research at CoreLogic.

In the two months between stage 2 restrictions being put in place from March 25 through to May, new listings fell by 50.3 per cent. By August, most of Australia saw an increase in listings as consumer confidence crept back into the market and fewer cases of COVID-19 were reported. However, Melbourne’s listings understandably remained at an all-time low.ⁱⁱ

Falls could be in the future

While capital city property prices didn’t see large falls during the first half of 2020, more affordable prices could be yet to come.

It is understandable that low sales volumes arise during times of high economic uncertainty, as sellers and buyers are less likely to transact. But when measures that have been designed to prop up the economy (such as mortgage relief, JobKeeper and JobSeeker) start to fall away, another shock could ricochet through the markets, therefore affecting property prices.

Anyone who cannot service the mortgage on their home or investment property have not had to list as a “distressed” or “motivated” seller, however as these financial crutches disappear between September and March 2021 then we could gradually see more distressed sales hit the market and prices shift into the buyer’s favour.

Migration on pause

According to the Treasury, our annual population growth looks to fall from around 350,000 new people in 2019 to about 154,000 for the year ending June 2021. If so, it would be the lowest population growth since 1917.

Put into perspective, population growth is calculated by adding net overseas migration (NOM) plus the natural increase (which is simply births minus deaths). Since late 2016, NOM accounts for more than 60 per cent of our population growth and is a significant player in Australia’s housing demand. By hitting the pause button on migration, demand for property will suffer.