During the week ending May 3, 89 residential properties were sold via auction in VIC & QLD alone according to CoreLogic. This happened despite open homes being disallowed under lockdown rules and despite the fact that many of these purchasers won’t see the insides of their new homes.
People are attending virtual viewings, speaking to conveyancers and mortgage brokers via Zoom and signing contracts of sale digitally. It’s remarkable – the property market in these states are so resilient that not even a global pandemic can’t stop them from functioning.
With that said, there’s no doubt that COVID-19 will affect the VIC & QLD property markets in some way. The question is, how much and for how long?
The shape of the Vic and QLD property markets pre-COVID-19
The Australian property market was in an excellent position prior to the pandemic thanks to huge house price growth in main centres during the year to March 2020. VIC and QLD were in a performing particularly well, according to Domain’s house price report:
- Melbourne hit a new record high average property price in February 2020 with a year-on-year increase of 12.6%.
- The average Brisbane house price increased by 2.3% to March 2020.
Up until early March when COVID-19 became a serious concern, experts forecasted double-digit growth in Melbourne and Brisbane throughout 2020.
How will COVID-19 affect the VIC & QLD property market right now?
COVID-19 will impact the property market in Victoria and QLD in many ways – the most immediate effects of which can be seen in auction numbers and clearance rates, which are a good indicator of buyer demand and sales activity.
Melbourne auction results
| 2020 (week ending May 3) | 2019 (week ending May 4) | |
| Number of auctions | 217 | 539 |
| Clearance rate | 41.9% | 56.6% |
Source: CoreLogic RP Data
Brisbane auction results
| 2020 (week ending May 4) | 2019 (week ending May 4) | |
| Number of auctions | 41 | 93 |
| Clearance rate | 28.9% | 23.0% |
Source: CoreLogic RP Data
As you can see from the lower number of auctions fewer homeowners are selling right now due to uncertainty and the lockdown restrictions making it practically difficult. But on the other hand, the relatively high clearance rates shows us that buyers are still out there hunting for property and that demand for property could be strong in Melbourne & Brisbane when we come out the other end of this.
With that in mind, it’s likely that COVID-19 will adversely affect the property market in a few main ways:
- Supply of homes for sale may fall due to uncertainty, similar to during election years. Changing economic circumstances may also cause sellers to delay their moves, or sell urgently.
- A number of factors could decrease the demand for a new property in the short term. These might include:
- Decreased interstate and international migration.
- Fewer international property purchases.
- Job loss or income uncertainty due to COVID-19. This may be particularly pronounced in regional areas that rely on tourism or hospitality.
- A decrease in buyer confidence.
- The disallowance of open homes and on-site auctions under lockdown rules (which may of course change in the near future).
- Decreasing interest rates and the increasing availability of credit as the Reserve Bank and government look to stimulate the economy and the property market.
These factors are yet to have a significant material effect on property values. In fact, CoreLogic’s April 30 housing index shows that values actually increased or stayed the same during April in every capital city except Melbourne, which saw a small decrease of 0.29%. Average house values in Brisbane also increased by 0.32% during April.
Will the Australian property market recover from COVID-19?The expert consensus is that yes, the Australian property market should absolutely recover from COVID-19. The question is, will property prices dip and how long will it take them to come back?Property Consultant firm Ripehouse Advisory recently spoke to the heads of real estate institutions (REI) in each state and a number of leading property experts to try and answer that question.Their survey results found that most of the industry’s leading experts believe that the pandemic’s effects will be felt mostly in the 3-12 months from mid-March 2020. When asked which state will be worse affected:
- An overwhelming majority (73.4%) of respondents said NSW.
- Only 5.8% said QLD and 5% said VIC.
Interestingly, almost a third of survey respondents (28%) also said that in 12 months house prices will be more than they are now, while around 4% said they’d increase by over 20% in the next 12 months.Leah Calnan, REIV President, commented that some commercial property and short term Airbnb and holiday rentals may suffer more than other sectors. A thread amongst their comments was also that properties in smaller cities with less diverse economies may drop in price, whereas inner – or middle-ring property markets in capital cities are likely to hold their values and recover quickly.
What happened to Australia’s property market during the 2008 GFC?
In the span of a month, Coronavirus has changed the world. Despite that, the fundamentals of Australia’s best-performing property markets remain the same – housing supply is low and interest rates are heading towards zero fast. And while Coronavirus is an unprecedented event, we can look to past recessions to get a rough idea of how the property market may react to what’s coming next.
When the 2008 global financial crisis hit, the national median house price in Australia decreased by 1.4% during the June quarter and 2.1% during the next, according to Domain. But by April 2009, house prices started to pick up again increasing by:
- 5% in 2019’s June quarter,
- 9% in 2019’s September quarter, and,
- 6% in 2019’s December quarter.
Coronavirus is of course unique, but the market’s behaviour during the last GFC shows that the Australian property market is resilient and that a recovery can happen quickly despite dire circumstances. This is especially true right now when interest rates are lower than ever and are expected to go even lower in the near future. For investors willing to go against the grain this could present an opportunity to buy well in VIC & QLD and enjoy quick capital gains on the other side.
