Source: Australian Property Journal
According to the latest CoreLogic Home Value Index, Melbourne saw the sharpest reversal in conditions over the months, with values ticking down by 0.3%. Sydney values rose 0.4%, but both cities averaged monthly growth of around 1.7% over the previous six months.
Most regions recorded a rise in home values, but the national monthly pace of growth eased from 0.7% in March to 0.3%. The April result was the smallest month on month movement since a fall of 0.2% in June last year. CoreLogic head of research, Tim Lawless, said Australia's largest cities have a higher level of downside risk.
"Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents," he said.
Hobart was the only other major region to record a decline in home values over the month, down 0.1%. Lawless said Hobart has the most exposure of any capital city, at least proportionally, to the industry sectors most heavily impacted by COVID-19 in terms of employment. About 12.7% of the workforce is employed within accommodation and food services, and arts and recreation services sectors, which have been all but shut down. Some resilience was seen in Perth (up 0.2%), Adelaide (0.4%) and Darwin (1.7%), which all outperformed their six month average pace of growth in April.
Big four bank NAB rattled the market last week, outlining a severe downturn scenario in which house prices fall . However, its base case scenario assumes a 10% fall this year and a slight recovery with a 2.6% increase in 2021.
The Commonwealth bank has said prices in Sydney and Melbourne could drop by at least 10% over the next six months as part of what it described as an "inevitable" house correction. Victorian government modelling predicted unemployment in the state would soar to 11% and house prices would fall 9% by the end of 2020.
AMP Capital's chief economist Shane Oliver has suggested house prices could decline by 20%, should the coronavirus-driven downturn in the economy push unemployment well above 10%, and property firm CBRE believes a 10% pricing decline in 2020 is not an unreasonable scenario, with risks on the downside.
The Westpac/Melbourne Institute Consumer Sentiment report showed confidence in price gains over the next 12 months had fallen to its lowest level since 2009, while sentiment in the latest ANZ/Property Council Survey fell to a record low in March.
Activity dries up
Settled sales fell by around 40% in April as buyers retreated to the sidelines and listing numbers dried up, according to CoreLogic.
Lawless said that while recent months are harder to provide an accurate estimate due to a lag in receiving the full sales records from state governments and the impact of Easter, the substantial drop in sales activity is supported by a similar fall in the number of mortgage related valuation events across CoreLogic valuation platforms, which account for around 85% of lender valuation instructions.
Activity across CoreLogic's RP Data platform, used by real estate agents to undertake research to prepare a property for sale, was down by around 60% prior to Easter, providing a "firm signal that industry activity has been hit hard by the drop in active buyers and sellers as well as policies preventing open homes and onsite auctions".
New listings being added to the market was tracking 35% lower at the end of April relative to the same time a year ago, and 43% below the five year average.
Lawless said lower advertised supply levels may have a silver lining for housing values.
"The reduction in advertised stock levels at a time of low demand is another factor that should help to insulate housing values from a more material downturn."
The drop in housing turnover has implications for a wide variety of industries that are either directly or indirectly reliant on property sales, Lawless said, with real estate agents to nbe among the most impacted by the decline in transactions.
"A significant reduction in housing activity will also have an impact on the banking and finance sector, due to reduced mortgage-related activity, less valuation work and conveyancing. There will also be fewer building and pest inspections and a drop in removalist services.
"While construction of dwellings is still progressing amid COVID-19, the building sector is facing challenges to productivity as sites are adapted to ensure the health and safety of workers.
"A slowdown in approvals will have a lagged impact on available projects for construction companies down the line."
Revised forecasts from Master Builders released on Friday showed up to 43,000 new homes will not be built over the next 12 months as a result of COVID-19. The organisation has forecast in February that there would be around 159,000 new housing commencements in 2020/21, but now expects only around 116,000, a drop of 27%.
Higher supply and lower demand hit the rental market in April. Rents fell in seven of the eight capital cities, headed by Hobart (down 1.1%), Sydney (0.7%), Canberra (0.7%) and Melbourne (0.5%). Perth rents inched upwards.
Rental markets were already soft leading into COVID-19, with annual growth of just 1.0% across the combined capital cities over the 12 months ending March. The April dataset has dragged that to just 0.4%.
Lawless said rental markets are likely to show much weaker conditions over the coming months due to higher supply levels. The conversion of short term rentals to permanent arrangements, and the large number of off-the-plan units that have recently completed or still under construction are adding to rental supply, he said.
This means that you get the 'real' valuation of your real estate with no hidden agendas.