Economists at ANZ are predicting that house prices will bottom out 10% lower in the second half of 2021. They similarly expect construction to drop a further 14% by this time period.
Driving the dwelling price decline are a number of COVID-19-related factors including the deteriorating labour market, elevated uncertainty as well as weak investor appetite. Construction is also facing strong pandemic headwinds with a cumulative decline for the sector expected to reach 25% by mid-2021.
ANZ notes that the HomeBuilder grant will “limit but not fully offset” the decline in housing construction. Further pressure on the market comes with the imminent end of government job stimulus, superannuation withdrawals, mortgage deferrals and rental negotiations.
“We anticipate prices will bottom out in the second half of 2021 as the labour market improves, but the recovery is likely to be relatively gradual given that we expect unemployment to stay above 8% until [the] end [of] 2021,” ANZ economists Felicity Emmett and Adelaide Timbrell said.
The ANZ national dwelling price forecast remained unchanged at -10% however capital cities price changes were tweaked with Melbourne prices forecast to fall 15%, Sydney 13% and Brisbane 6%. We cover the reasons for these steep price falls in a recent article.
The ANZ economists highlighted the fact that falling population growth will continue to constrain housing demand with the number of people leaving Australia outnumbering the people arriving by 150,000.
“Closed international borders have removed the largest source of Australia’s population growth,” Emmett and Timbrell said. “In 2019, net overseas migration accounted for around 240,000 people or nearly two-thirds of Australia’s population growth. The drop in population will remove a major driver of economic growth and housing demand, at least for a period.”
According to the report migration and job losses had also disproportionately hit the rental market and will continue to impact future construction levels.
If we assume that these price falls are correct, what does it mean for you?
The primary take away from this is that it’s going to take a while for the property market to recover from COVID-19-related impacts. Buying and selling right now is as you would expect: it might take you a little longer to find the right home or buyer, but they will be very keen to sell to you (or buy from you) at the right amount. Although this is, of course, not true of every property (always consult experts and take the actions that are appropriate for you and your situation), a good rule of thumb to keep in mind is this: you are buying and selling in the same market. This means that even if you sell your property for 10% less, you’ll also be buying your next property for 10% less as well, essentially making the potential “loss” null for all intents and purposes. The opposite is also true: if you sell for 10% more, you’re likely to buy a home worth 10% more, as the entire market will be up. With this in mind, any COVID-19 related price changes shouldn’t seem too bad!