The attached note updates our analysis of the impact of the Coronavirus shutdown on the Australian housing market. The key points are as follows:
- Australia capital city home prices fell by -0.5% in May, based on Core Logic data with five of the eight capital cities seeing falls including Melbourne (-0.9%) and Sydney (-0.4%)
- Significant policy support and the earlier reopening of the economy have made our worst-case scenario for a 20% decline in average Australian house prices unlikely.
- However, our base case is for home prices to fall around 5-10%, as “true” unemployment will remain high, government job and income support measures and the bank payment holiday end in September, immigration falls and new supply is likely to be boosted via government measures designed to support home building. Sydney and Melbourne are likely to be impacted the hardest, particuarly given their greater exposure to immigration.
Back on 19th March when we first looked at the impact of the intensifying shutdown of the Australian economy on the housing market (see here) we concluded that the impact would depend on how high unemployment rose. Our 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.
So far so good
Since March property sales have slowed to a crawl.
Source: Domain, AMP Capital
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.