The economic consequences of the coronavirus crisis were always going to hit Australian property markets, but a leading analyst has painted a dire picture of things to come.
SQM Research boss Louis Christopher said there are two likely scenarios that could play out when it comes to real estate prices.
And in the worst of the two, Mr Christopher warns that property prices could plunge by a staggering 30 per cent.
Over recent weeks, median prices have held steady amid social distancing restrictions, but Mr Christopher said the warning lights on the dashboard were flashing already.
“When we consider leading indicators such as auction clearance rates, those indicators are suggesting that we are about to see a dip in dwelling prices,” Mr Christopher told the ABC.
“So, over the past few weeks auction clearance rates have plummeted. They were at the start of the year averaging between 65 per cent to 75 per cent. And in recent weeks fallen as low as the high 20s.”
Should Australia continue to successfully flatten the curve and begin to lift strict social distancing measures from May, then a V-shaped recovery could occur.
In that scenario, Mr Christopher said “we'll see dwelling prices fall for the June quarter but start to rise again in the September and December quarters”.
But if there’s a second wave of infections and restrictions remain in place for six months, as some health experts fear, then the picture is bleak.
“The housing market is likely to have a major fall (in that case),” Mr Christopher said.
“When I say major, we're talking up to a 30 per cent decline over a 12-month period, with the bulk of those occurring in Sydney and Melbourne.”
Sydney and Melbourne’s property markets are most reliant on overseas migration and are also the most overvalued, he said.
“And also, (they are) two cities which have been supported by high debt levels.
“Now, the other cities are more fairly valued. While they'd take a hit, we believe the hit would be less pronounced. And as mentioned, this is on the bleaker scenario.
“We're not saying this is definitely going to happen, it is more of a warning if we were to see these restrictions with us for the full six months and in, at their current levels, this is what would happen.”
Rental prices are also likely to be impacted, he said.
“Our view is that no matter what, the rental market is going to take a big hit. We’re going to see a significant rise in rental vacancies and a fall in rents.”
