The stock market is down, unemployment is up, and the country is on Government life support during lockdown.

But what’s happening to the property market?

Many people are struggling to decide whether now is a good time to sell. Their property’s value may have fallen recently and they’re worried that by selling now they could potentially miss out on any rebound in a few months’ time. But if they defer selling, they may risk prices falling further.

There is no right answer. Ultimately, it comes down to the reason why you want to, or need to, sell.

Let’s look at how we see the current post Covid-19 property market and what this could mean for prospective buyers and sellers.

Government restrictions

With public auctions currently prohibited in Victoria, and open home inspections available by appointment only (with a maximum of two people), agents have been forced to adapt their sales methods. We’re now operating with ‘expressions of interest’, private sale or online auctions. The fact that there were only 25 auctions in Melbourne last week, compared to 549 this time last year, speaks for itself.

If there’s enough interest from an expression of interest campaign, the agent may organise a ‘Zoom auction’ between those interested buyers. But unfortunately, online auctions don’t have the same competitive buzz as traditional auctions. Buyers can’t see their competition and the atmosphere isn’t conducive to generating those runaway prices we’re used to.

We’re hopeful the restriction on public auctions in Victoria is lifted soon, following the lead of NSW this weekend, as this will bring some welcome confidence back to the market.

Fewer Property Transactions

The number of transacted sales took a hit in April. Core Logic estimated there were 40% fewer settled sales nationally during the month than in April last year.

However, it’s interesting that agents have reported that despite seeing fewer buyers showing interest, there are also fewer sellers (about 50% less), so the two appear to be in balance (at the moment).

The important thing for vendors to remember is that there are buyers out there and properties are still selling. In fact, we find that most Melbourne properties still sell within their quoted price range regardless of the imposed changes to the buying process.

Supply and Demand

My grandfather used to jokingly say he could teach a parrot economics – it’s simply ‘supply and demand’. And the principles of supply and demand also apply to property prices.  

What are the current influences on demand for property?

The main drivers of property demand are the cost of finance, the availability of finance and consumer confidence.

We know the cost of finance is at a historic low, with home loans now down to around 2.5% pa. and interest rates not expected to rise in the short term.  Plus, lenders are still looking to do business, which means finance is available for the right borrowers.

However, consumer confidence depends on employment and wages growth. At present, unemployment is rising with economists predicting it’s already over 10% and could reach 15-20% later this year. And there’s no wages growth. So, consumer confidence will continue to be severely impacted.

When you also add population growth into the demand mix and the fact that we currently have no incoming migration, it’s a situation that’s likely to last some time. These all add up to some strong headwinds for property demand in the short to medium term.

What about the supply side of the property market?

Many vendors have either withdrawn their properties from the market or have chosen to defer selling. The number of new listings in Melbourne for April was down by 35% according to Core Logic.

We’re not seeing any distressed selling either, with Banks adopting a soft approach to customers in financial stress and not issuing default notices or taking enforcement action for at least six months.

The real positive for the property market is the commitment by Federal and State Governments to ensuring the property market doesn’t ‘go over a cliff’. The substantial stimulus packages are aimed at keeping the economy moving and free from defaults while we are in lockdown, and measures are set to continue until September.

Why were property prices almost unchanged in April?

Core Logic reported national property prices rose by 0.3% in April, although they did fall by 0.3% in Melbourne.

If we look back to the start of the year, the Melbourne property market was looking strong, with a large pool of buyers. Although some buyers have since withdrawn their interest, others have been keen to lock in their loan approvals while they still had them. Some had already sold property and needed to secure their next house, while others were tired of looking and were relieved to finally have the opportunity to buy a property without the competition.

However, we don’t see the buyer pool being replenished in the short term. It could even shrink further. Buyers are worried about falling house prices and/or they’re concerned their income is no longer secure and are therefore wary about making significant financial commitments.

This view is supported by Alan Oster from NAB, who predicts Melbourne house prices to fall more than 8 percent and apartments down 14% in the medium term. Only time will tell…

Our Views

Most vendors we speak to are selling their homes either to pay for an Aged Care Accommodation Bond, to finalise an estate or settling divorce proceedings. These are all compelling reasons to sell in the current market.

So far, we haven’t seen any real decline in property values, but this could change. We expect property values to slowly decline over the coming months, particularly when the current JobKeeper and other Government support packages end in September.

The disruption caused by Covid-19 is difficult to predict in its severity or duration. But we strongly believe if you need to sell your property, then act sooner rather than wait.

Robert Allanadale

Director

Tower Property Advisory

Our next article will focus on how long the property slump should last and what will follow.