CoreLogic’s Property Market Update June 2020
According to the CoreLogic Home Value Index results for June, Australian dwelling values posted their first month-on-month decline since June last year.
The national index was down 0.4% over the month, with five of the eight capital city regions recording a fall in values.
The reduction in values through May comes as transaction activity in the market shows more positive signs. The CoreLogic estimate of sales activity bounced back by 18.5% in May after a (revised) drop of 33% in April.
CoreLogic head of research, Tim Lawless, said “Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction. With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”
Across the state capitals, Melbourne’s housing market has posted the largest falls over the month, down 0.9% in May, following a 0.3% reduction in April.
Most regions have lost momentum and the longer-term outlook remains uncertain. “Eventually government stimulus will wind back and borrower repayment holidays will expire. In the absence of these policies, housing values could come under some additional downwards pressure if economic conditions haven’t picked up towards the end of the year,” said Mr. Lawless.
Although housing values are currently slipping or stabilising, recent history implies most homeowners save some level of a buffer that will help protect against negative equity.
The most rapid decline in housing values is across the top quartile of the Melbourne and Sydney markets. Melbourne’s most expensive quartile of the market recorded a 1.3% drop in values over the month, compared with a 0.6% fall across the broad ‘middle’ of the market and a 0.3% fall across the most affordable quartile.
Rents were generally steady in May. The national rental index rose 0.2% over the month, following a 0.4% decline in April. The May rise was not enough to reverse a weakening trend, with every capital city except Perth recording a fall in rents over the past two months. Unit markets are looking weaker than house markets over the past two months, with unit rents falling 0.8% since March across the combined capital cities while house rents were steady.
In the context of weak economic conditions and the broader COVID-19 related disruption, housing values have been relatively resilient and through May we have seen the first
signs of recovery activity. Tim Lawless said, “While downside risk remains, the trajectory the housing market is looking healthier than what we were expecting a bit over a month ago. The virus curve has been flattened more quickly and effectively than even the best-case scenario forecasts, meaning some of the most restrictive policy settings have been either lifted or relaxed. Consumer spirits have lifted, vendors are starting to test the market, and buyer numbers have risen.”
In closing Mr Lawless said, the broad theme we are seeing in much of the housing data is a mixture of resilience and recovery.
“Housing values have been remarkably resilient to date. If history is anything to go by, housing values have generally weathered periods of extreme uncertainty quite well, and the
trend to date looks very similar. Although home values haven’t materially fallen, buying and selling activity has been significantly impacted.
In May, the sharp falls in both listing numbers and buyer activity are starting to reverse in line with improving consumer sentiment.”
While the immediate indicators are showing resilience or improvements, the longer-term view of housing market conditions is much less certain. “Once stimulus measures start
to taper and repayment holidays expire, this is where we could see a rise in mortgage arrears and the potential for a lift in distressed sales.
Despite the recent recovery in certain indicators from very low levels, it is hard to ignore job losses of almost 600,000 across the economy over April. With the cash rate at its effective lower bound, improved employment conditions will be a factor in steadying purchasing capacity for housing, and the servicing of mortgage debt”. Mr Lawless said.
Central to the outlook for distressed sales will be what shape the Australian economy is in late this year. Encouragingly, the RBA governor recently noted in his evidence to the Senate
Select Committee on COVID-19, that the economic downturn may not be as severe as earlier thought, with the current economic trajectory somewhere between the RBA’s best case
and base case scenarios.
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