Australia’s sale and rental property market fell for a third month in a row led by drops in its largest cities, new data shows, testing its resilience as the country grapples with a pandemic.
The data, released by industry giant CoreLogic, comes as Melbourne braces for a second lockdown to cope with rising COVID-19 infections, and as government support payments taper away later this year.
Owner and renting markets take a hit
Property value in Melbourne dropped by 1.2 per cent and Sydney dropped by 0.9 per cent in the month of July, according to CoreLogic’s Home Value Index report, leading a contraction of property prices across Australia of 0.6 per cent.
Despite three consecutive months of contractions, the housing market has proven to be resilient in dealing with the unique challenges presented by the COVID-19 pandemic, Tim Lawless said, head of research at CoreLogic.
“The impact from COVID-19 on housing values has been orderly to-date,” he said.
“Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn.”
But Mr Lawless warned the reduction in government support -- commencing as soon as October -- skews the property market’s medium term outlook to the downside.
“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience,” he said.
“Similarly, the recent concerns of a second wave of the virus, and the potential for renewed border closures and stricter social distancing policies are likely to further push consumer sentiment down. This is likely to weigh on both home buying and selling activity more broadly.”
The quarterly losses haven’t been enough to offset the yearly growth of the two major cities. Sydney homes and apartments led the nation in annual growth at 12.1 percent, while Melbourne followed at 8.7 per cent.
The rental market similarly weakened in the four months to July, hitting the areas impacted by border closures the hardest. Apartments across the country had the largest drops in rent at 2.6 per cent, whereas rental income for houses dropped a comparative 0.3 per cent.
Hobart was hit the hardest with apartments dropping 4.4 per cent in rent, followed by comparative drops in Sydney of 3.2 per cent and Melbourne of 3.1 per cent.
The drop in rent is owed to a confluence of factors, Mr Lawless said, including the:
- COVID-19 pandemic
- growing popularity of short stay services such as Airbnb
- departure of temporary migrants including foreign students
- Oversupply of intercity apartments
- Increased unemployment in food and accommodation services, arts, and recreation services.
“Some inner city areas of Melbourne and Sydney have seen rental listings more than double since March,” Mr Lawless said.
“Compounding this weak demand position is the surge in construction activity and investment over previous years, which has added to inner city rental supply.“
Property across regional Australia has been weathering the challenging economic climate more resiliently, the data shows. Across the combined regional areas, housing values were unchanged in July compared with a 0.8 per cent fall across the combined capital cities.
The market’s future is at the whim of the COVID-19 pandemic and the subsequent response, Mr Lawless said.
“As stimulus measures wind down and borrowers taking a repayment holiday face up to their debt, it’s logical to expect a rise in distressed properties coming onto the market,” he said.
“Further virus outbreaks present a clear and present danger to the depth and length of the recession, and the performance of the housing market.”
A similar sentiment was echoed a week ago in ME Bank’s Household Financial Comfort report. It noted government support payments had insulated households with little savings, and that their financial wellbeing was largely dependent on JobSeeker and JobKeeper payments.
A buyer’s market
If you’re in the market to buy an apartment or house, a drop in property prices could be welcome news. CoreLogic’s data also revealed “the demand for established housing stock is outweighing advertised supply”, recognising that there is still an appetite for buyers.
Mortgage interest rates are at an all time low and competition between lenders is strong. Take a look at RateCity’s comparison of mortgage loans to help find the right deal for you.