In our April 2020 edition we posted an article by Dr Shane Oliver, Head of Investment Strategy and Chief Economist for AMP Capital in which he outlined the possible risks to housing prices amidst the coronavirus and implications of shutting down. The piece was published on 19th March, just before the official “lockdown” restrictions were handed down by Prime Minister Scott Morrison.
A month on and Dr Oliver has had an opportunity to reassess the situation following the fiscal and monetary stimulus packages and the slow easing of restrictions on Australians, suggesting Australian house prices are starting to fall and that a collapse has likely been averted. However, he does warn to expect more weakness ahead.
We follow up our April Feedsy article – The threat to Australian house prices with a summary from Dr Oliver’s more recent assessment-
When he first looked at the impact of the intensifying shutdown of the Australian economy on the housing market he concluded that the impact would depend on how high unemployment rose. AMP’s base case was a recession that saw unemployment rise to around 7.5% and would push average home prices down around 5%, but the risk was that a deeper downturn with say 10% unemployment could see a 20% fall in prices. Subsequent government support measures along with an earlier reopening of the economy have reduced the risk of worse case scenarios for home prices.
The combination of the need for social distancing and the banning for a while of traditional on-site auctions led to a sharp decline in properties for sale. In addition to this, the Federal Government’s JobKeeper scheme keeping around 3.5 million people in paid employment and a doubling in unemployment benefits along with bank mortgage payment holidays, all of which are for the six months to September, have helped head off an increase in forced sales that might have occurred given the size of the hit to the economy. So, while property demand has fallen, it’s been matched by a collapse in supply, which has left the property market in a bit of a twilight zone.
While listings have started to pick up a bit lately, they are still very low and this has all helped soften the blow to house prices that would have otherwise occurred, but prices are still starting to fall. According to CoreLogic, after slowing to just 0.2% growth in April, average capital city home prices fell -0.5% in May. Prices fell in all cities except Adelaide, Hobart and Canberra, with Melbourne -0.9%, Sydney -0.4% and Perth -0.6%. This has seen the monthly change in capital city home prices collapse from a peak of 2% in November.
So where to from here?
In the full article, Dr Oliver provides both positive and negative outlook points for the Australian market.
- The drop in mortgage rates
- Government support measures
- lower listing rates (as mentioned above)
- Male breadwinners not having been as largely impacted during the current recession compared to previous recessions; and
- Having China as a guide given they were 2-3 months ahead of Australia in relation to the virus.
- High unemployment
- A big drop in immigration
- Falling rents and rising vacancy rates; and
- Measures to boost housing construction
The worst-case scenario in April 2020 was for a 20% decline in prices and those of others seeing 30% plus falls. Now, Dr Oliver feels these are unlikely thanks to support measures and the earlier reopening of the economy.
However, further falls in prices are still likely, as “true” unemployment (to become clear after September) remains high for several years, government support measures and the bank payment holiday end after September, immigration falls and likely government measures boost housing construction. Our base case is for national average prices to fall around 5-10% into next year. Sydney & Melbourne are likely to see 10% falls as they are more exposed to immigration and have higher debt levels whereas Adelaide, Brisbane, Perth & Hobart are only likely to see small falls and Canberra prices are likely to be flat.
This may be seen as a reasonable outcome in terms of making housing more affordable but without posing a big threat to the economy (via a downwards spiral of falling prices and negative wealth effects on consumer spending) at the same time.
The full analysis can be found at livewire.com – Australian house prices starting to collapse
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