What impact has COVID-19 had on property prices? And are the dire predictions of some experts likely to come true? Price predictions are all over the place at the moment, leaving buyers and sellers understandably confused. Here’s how to make sense of the situation, and why for some people, buying now might be an excellent choice.
Why auction clearance rates aren’t a good indicator
While there has been a lot of fevered speculation about property prices during the pandemic, the Australian real estate market seems to be holding strong for now. Growth has slowed in most of the capital cities, with small price drops in Melbourne and Sydney.
The ban on auctions had a bigger impact on the east coast, where sellers are more likely to choose that selling method. CoreLogic reports a more-than-50% drop in auction clearance rates during April 2020, from around 70% to just 30.2%, setting alarm bells ringing.
However, don’t be too quick to panic. While auction clearance rates are usually strongly linked to property growth, these aren’t normal times. Usually when an auction is cancelled, it’s recorded as ‘passed in’, meaning the seller didn’t achieve their price. In this case, it’s clear that something else is happening. A lot of sellers are simply deciding to hold off for now and stay put while the global situation is unsettled. Others are simply switching to private treaty campaigns.
Price changes vary across the country
Where there are declines, they aren’t consistent across the country. Melbourne and Sydney have the most reliance on net migration levels and foreign investment in real estate — both things that have dropped off sharply and are unlikely to bounce back any time soon. Brisbane, too, is heavily reliant on Asian students, tourists and investors, which might leave it exposed.
It also depends on the economy of the region. Canberra and Adelaide, both of which employ a large percentage of public sector workers, haven’t seen the same rise in unemployment as, say, Tasmania with its greater reliance on tourism. The mining industry is relatively insulated, which helps Western Australia and the Northern Territory stay steady, while pockets of Western Sydney with a lot of hospitality workers may feel extra pain.
For some, now is the best time to buy real estate
What does this mean for you? If you’re in secure employment, now might be a fantastic time to get into the property market. First home buyers in particular can benefit from more affordable prices to finally get their foot on the ladder. Long term investors who want to buy and hold can also benefit, especially those with healthy loan-to-value ratios and income.
It’s also important to note that the fundamentals of the market haven’t really changed. We have been hit with a ‘black swan’ event — one we couldn’t have seen coming and which has caused unprecedented change.
Underneath, the Australian love of property continues unabated.
How versatile agents can get great results
In fact, agents who have stayed agile and worked with the new situation have been able to achieve some amazing results.
At Elders, we’ve pivoted to a digital space that allows us to carry on business as usual — a little bit differently.
From live-streaming walk-throughs so that potential buyers can view the property and ask questions in real time to virtual auctions, we’ve risen to the challenge. If you want to know how much your home is worth, we’ve also put virtual appraisal procedures into place to help.
There might be fewer buyers in the market, but those who are, are often highly motivated. They might have moved for work and need somewhere to live or have sold their own place prior to the downturn. For them, the drop in listings is a huge problem as there isn’t much choice.
Add in our first-class negotiation skills and a savvy seller can realise a great price – free of all the usual competition!
Future projections depend on our response to the health crisis
What will happen in the future depends on the speed of our economic recovery. A ‘v-shaped’ recovery, where restrictions are lifted throughout May and June after the shock of March and April, could see house prices rebounding before the end of the year. If there is a second wave and restrictions are prolonged, recovery could be slower. Experts disagree on how much (or whether) house prices will fall, but they all agree that the faster we get on top of the health crisis, the stronger our position will be.
At time of publication, the Australian experience with COVID-19 is one of the best in the world. We have suppressed the curve so successfully that the government is talking about lifting restrictions earlier than planned. Our testing regime is excellent, and our status as an island allows us to stay insulated from the rest of the world until there’s a vaccine. All of this supports the more optimistic model of a short, V-shaped recovery and early rebound.
While none of us know the future, the indicators are that Australia may once again be the lucky country.