Property prices ‘could fall as much as 30pc’ in overvalued larger markets of Sydney and Melbourne

Consumer sentiment, a key driver of buying and selling, threatens to dive amid social distancing measures.

The Sunshine Coast is among the top 10 places in Australia to buy homes or units, according to a new report.

Residential property prices could plummet 30 per cent from current highs should social distancing restrictions on the housing market remain in place for a prolonged period, says data house SQM Research.

The next 30 days will be a telling time for the market, said SQM managing director Louis Christopher. Consumer sentiment, a key driver of buying and selling, threatens to dive should social distancing measures regulating the property industry such as a ban on open homes and public auctions remain in place for more than six months.

“If we are able to get back to close to normal business by end of May (I certainly don’t think all restrictions will be lifted by that time), then I think confidence in the housing market is going to return,” Mr Christopher said.

“Assisted with all the stimulus announced and the economic damage relatively limited, it would mean a fall in housing prices recorded for the June quarter but a bounce back in the September and December quarters.”

The closure of Australian borders, which Mr Christopher anticipates will be one of the last restrictions to lift, will eliminate overseas migration and reduces the underlying demand for housing.

In a worst-case scenario – which would see a second wave of new cases through winter and cause an inevitable rise in unemployment and restrictions to remain in place – property prices could fall as much as 30 per cent in the overvalued larger markets of Sydney and Melbourne. Mr Christopher notes the smaller, cheaper markets would likely fare better.

Median Sydney house prices surpassed $1m in February and remain just 2.7 per cent behind its 2017 peaks. In Melbourne, house prices have reached new median highs of $819,611.

While modelling is impossible to build at this time due to the unprecedented and unpredictable nature of the pandemic, Mr Christopher based the outlook on previous works examining the relationship between unemployment and the housing market.

He notes the worst case scenario is unlikely.

“There is also the possibility we muddle through somewhere between the two scenarios. A world where daily new virus cases don’t quite get to zero but there isn’t a second wave. Restrictions lifted very gradually over many months,” Mr Christopher said.

“Eventually, a vaccine is produced and distributed in 2021. We would need to see what is lifted and at what point in time to work out the impact on the housing market. Regardless, rents will still be hit for simply the fact that the international border will still remain closed.”

New figures from the data firm revealed all capital cities experienced a rise in the number of homes on the market through March, up by 3.7 per cent nationally to 307,847. Older listings languishing on the market for 30 to 60 days surged 74 per cent over the period, which Mr Christopher said suggests a slow down in sale numbers.

“Residential property listings are starting to increase and accumulate. I note the surge of stock that has been on the market between 30 and 60 days. This may reflect the start of a capital city housing market downturn due to the health and economic impact of COVID-19,” he said.

“I also note though the rise in asking prices for the month, so quite a number of vendors have not really adjusted their pricing expectations as yet.”

The total number of listings available nationally was down 13.2 per cent through March compared to the same time last year when the market was reaching the end of a downturn.

The possible market correction of 30 per cent would outpace the falls seen through The Great Depression of the Spanish flu pandemic of 1919. But neither situation saw Australians as debt laden as they currently are, with the current economic situation more closely resembling the boom and bust of the 1890s.