How will coronavirus affect property prices in Australia?

With the government further restricting movements of crowds and the stock market dropping, the effects of COVID-19 are beginning to be felt around the country. In what started as such a promising year for the property market, 2020 is now becoming a year of great uncertainty. One major question has been on everyone’s lips over the last few days though: how will coronavirus (COVID-19) affect house prices?

We’re breaking it down so you understand exactly what’s happening around Australia right now.

What’s happened so far?

Over the last couple of days, the economic situation world-wide has taken a bit of a nose-dive. Stocks and bonds have fallen quickly and reserve banks worldwide have announced stimulus packages to keep their countries afloat. Dozens of countries have closed their borders, banned international travel or instigated enforced quarantines, and many more have announced social distancing, closing of schools and workplaces, and cancelled events (Ireland didn’t have any pubs open on St. Patrick’s Day, nor did the annual St. Patrick’s Day parade occur for the first time in its 258-year history, to give you the scope of how seriously some countries are taking it).

A large sector of the economy is facing a murky future due to roles being cut, forced paid or unpaid leave, and businesses rolling back their future plans.

This is all coming in on the back of rising house prices. Cheap money has in the past year appeared to help fuel rising house prices nationally, especially in the Sydney and Melbourne markets where values are back around all-time highs.

Will the rate cut and stimulus package help?

With the Reserve Bank of Australia expected to further cut rates on Thursday — after a recent cut to 0.5% — historic lows are being achieved. The RBA cut rates soon after news broke of the developing coronavirus outbreak, and on its own, that positive for the housing market. After all, rate cuts are generally passed on to customers, making low-rate situations ideal for getting into the housing market since it’s easier to pay off your mortgage.

But the reason the bank is cutting is COVID-19, and that’s negatively impacting the economy as a whole, as we discussed above.

Yes, the government has released its stimulus package and there may be more fiscal stimulus on the way, but there are limits to what any government can do. Even with the decision to stimulate the economy via quantitative easing* (essentially, buying up government bonds to inject more money into the economy) for the first time in Australian history, some are still arguing the stimulus may not be enough to help the economy.

This uncertainty about the future is bad because potential buyers are pulling back. With the market losing momentum, we will see price falls.

*It’s worth noting that quantitative easing is known to push up asset prices extremely quickly. If this happens, we could potentially see a massive housing bubble. Unfortunately, the circumstances we find ourselves in are quite different from any prior economic crashes or pandemics, so current modelling showing this is being considered with caution.

What do I need to know if I want to buy?

The first thing you need to be prepared for is less stock on the market. Sellers might decide to hold on to the house for another six months, or new off-the-plan developments might be delayed. In any case, there will be fewer properties entering the market, and you might not be able to find what you’re looking for.

In good news though, if the RBA cuts are passed along to the average mortgage holder — even just the upcoming 0.25% — someone with a $400,000 loan could save as much as $55 a month on minimum monthly mortgage repayments. An extra $50+ could mean a nice treat for yourself in these trying times, or for some, the ability to keep food on the table. As house prices slide lower, we might see some more first home buyers enter the market as they snatch up homes at a more affordable price with more affordable mortgage rates.

What do I need to know if I want to sell?

If you’ve decided that want or need to sell now, you need to be prepared for a softer market. COVID-19 is going to pull quite a few potential buyers out of the market. There are those adopting a ‘wait-and-see’ approach, who won’t get into or out of the market until they’re sure of what’s happening. Other potential buyers simply won’t have the capital to enter the market any longer due to loss of jobs, reduced income, or equity assets being devalued. Either way, many potential buyers of your property won’t be out there looking to buy it.

However, it’s not all bad news yet. Auction clearance rates, one of the market’s leading indicators, are showing signs of softening — but it hasn’t fallen yet.

“The impact so far has been pretty muted. Clearance rates have been down a touch but they’ll still be pretty solid numbers when they’re finalised later this week, probably ending up around 70% in Sydney and 65% in Melbourne,” Domain economist Trent Wiltshire told Business Insider Australia.

“There are fewer people at inspections but it doesn’t seem like the news has flowed through to the property market although there is some risk to the short-term outlook.”

Unless your home is already on the market, we would recommend rethinking heading into the market if you’re out to make a major profit. There are a couple of options we would recommend. If you’ve got the flexibility, you might be able to defer, which could cushion price falls. You might also find success advertising to different types of buyers if you need to sell now.

What do I need to know if I am an investor?

It’s a mixed bag if you’re an investor. On one hand, you can see benefits from the decline in rates and repayments, but this is offset by declining rents. COVID-19 is causing the economy to put downward pressure on rents in the short term, as former tenants are unable to enter the country, or are returning to their home state/town for quarantine reasons.

If prices come down, investors could be in a better position to buy (to create or add to an existing property portfolio) but that weakness in rents is a real factor—it has been for some time and is unlikely to go away any time soon.

What will the next few months look like?

There’s no doubt coronavirus will increase caution among many buyers and encourage a lot of sellers to defer. We will see the Australian market as a whole tightening up over the coming months, as people react to COVID-19, crashing stock markets and travel grinding to a near-halt. Talk of a recession is growing and while the big companies may not lay off a lot of people, a lot of small businesses are facing the prospect of low to no revenue. They may have no choice.

The stimulus package is well-targeted but no stimulus package in the world that could stop some of these effects happening at all.

The RBA believes that we will see a rebound by the second half of this year, and we agree that we should see the market begin to pick up throughout the latter months of 2020. Trent Wiltshire says that “…if contained, things will rebound quite quickly, and that goes for the property market as well.” However, just how quickly and how big this rebound will remain to be seen.

What will 2021 be like?

2020 will, in many ways, be a hard, but hopefully good year for the economy. It is currently hoped that most economies world-wide will have rebounded by this point, but COVID-19 will have made its mark. It wouldn’t be far-fetched to expect hundreds of potential buyers to be pushed back several years in their property-buying journey as they recover from income losses and health issues.

Either way, it’s important to remember the rebound will happen. People will recover, they will go back to restaurants, they will go to football games. Things will eventually bounce back.

Read more of our coverage on the effects of COVID-19 on property in Australia.

Written: 25 March 2020, Updated: 24 March 2020

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