Australian housing values 'slowing rapidly' as coronavirus weakens consumer sentiment

The property sector has been plunged into doubt as a huge number of buyers and sellers withdraw from the market with sharp falls expected.

Housing values rose in March as the coronavirus crippled the economy and ground nearly all industries to a halt, but experts are forecasting prices to “rapidly” slow in the coming months.

The strict social distancing measures enforced by the government to control the spread of the pandemic has caught up with the booming real estate sector, with the number of properties being put up for auction nearly halved in the last two weeks.

Despite this rapid decline of stock as well as consumer sentiment falling through the floor, housing values increased over the month by 0.7 per cent, according to Corelogic.

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Values grew by 1.1 per cent in Sydney, 0.4 per cent in Melbourne, 0.6 per cent in Brisbane, 0.3 per cent in Adelaide, 0.5 per cent in Perth and 2.0 per cent in Darwin, while Hobart went the other way, losing 0.2 per cent.

The sector had been on a tear since the Coalition Government won the federal election last year and squashed the Opposition’s proposals to end negative gearing and the capital gains tax discount.

Sydney and Melbourne recorded annual increases in values of 13 and 12 per cent respectively.

But the March figures were the weakest since Scott Morrison assumed the role as Prime Minister with Corelogic’s head of research Tim Lawless conceding the property market won’t be immune to the shock of the virus.

“It’s hard to see how far values will fall,” he told news.com.au.

“It’s fairly clear that we do expect transactional activity to reduce quite sharply, probably more than half of what we would normally expect around the coming months.

“But the impacts on values is far less certain because we do have some insulation for housing markets in the sense that banks have become quite lenient for any borrowers moving into a stress situation if they've lost their jobs.”

ANZ-Roy Morgan Consumer Confidence plunges to 30-year low at 72.2. Confidence fell by a massive 27.8% last week. This fall has bought the headline index to just above the all-time lows recorded in 1990. Confidence is 17% below the lowest point... #auspol https://t.co/Nt2hi8EIvX pic.twitter.com/ZEPAFZr9PJ

— Roy Morgan (@roymorganonline) March 26, 2020

The values will begin to be “sharply” impacted, says AMP Capital chief economist Shane Oliver, who pointed to the massive drop in market activity.

“Property sales are likely to slow to a crawl in the months ahead and property prices are likely to fall as the coronavirus shutdowns hit the property market and the economy,” he said in a note.

“Sellers and buyers are likely to put property transactions on the back burner to avoid catching the virus and in order to comply with social distancing requirements.

“More significantly prices are likely to fall as unemployment rises triggering debt servicing problems for some against the back drop of very high household debt levels and high house prices in Australia and depressing property demand even for a while after the shutdowns are relaxed.”

Mr Lawless said the ambiguous nature of the pandemic and the fluctuating opinions of how long society will be in the grips of its outbreak will dictate the market’s reaction.

“Until we know the answer to those questions, we really don't know what the impact is going to be on housing values,” he said.

“But clearly there will be an instant reaction in terms of the volume of property sales - it’s going to fall quite sharply, as will the number of listings coming on to the market.”

Property values have typically surged higher after financial crises.

After the Black Monday stock market crash of the late ’80s, housing prices rose by up to 30 per cent in each of the following two years once the dust had settled.

But Mr Lawless said the unique nature of the cause of this looming recession makes it difficult to expect a similar bounce.

“Arguably, all the factors are there to see a fairly rapid rebound in the market,” he said.

“You've got extremely low interest rates and by the time sentiment improves there will be an element of pent-up demand that's ready to be unleashed.

“But it really comes back to - what is the consumer mindset?

“Chances are as we start to see the economy improving, consumers will still be a little bit rattled by what we've just been through.

“With that in mind, we might not see the housing market bouncing back quite as quickly as what we've seen over previous economic shocks.”