The world has changed a lot within the last three months’ time as countries implement necessary quarantines and social distancing practices to contain the pandemic. This has been followed by the unreal magnitude and speed of collapse in activities around us.
According to the IMF, the current recession due to the lockdown is even worse than the Global Financial Crisis as well the worst recession since the Great Depression. The times are highly uncertain, and the impact of the same has started to become visible with job losses and liquidity crisis.
One of the major implications of the ongoing great lockdown across several nations is the sluggish growth in the economy and massive unemployment globally, especially across small businesses and travel-related businesses. The dramatic rise in unemployment is anticipated to impact the worldwide property market, and the impact is expected to be severe than the recession in the early 1990s as well as the 2008 GFC.
Australian Property Market and Unemployment
The Australian property market had seen a boom after months of a downturn in the property price across major cities. The prevailing uncertain situation due to the covid-19 has increased the chances for the property market to linger as economic activities continue to be at a standstill for a longer period of time.
Often investors see property as an option for investment, but with no employment for investors, the property market is likely to suffer from lack of investment. Consumer spending plays a key role in economic growth, along with a strong housing market and rising home prices. Researchers believe that any shrinkage in the activity and prices related to housing is likely to present a material risk to consumer spending.
The latest data released by the Australian Bureau of Statistics (ABS) shows that the trend unemployment rate remained steady at 5.2 per cent in early March; however, several speculations were made regarding the impressions of unemployment to be seen from the beginning of April.
Also, the survey results declared by ABS included the data from the first half of the month that was before most of the restrictions due to coronavirus were implemented.
There are predictions for a considerable decrease, slightly below double-digit, in the employment in Australia if the survey is conducted in the current scenario. Moreover, the fall in the property prices could have severe implications on the overall housing market.
In April 2020, the Westpac-Melbourne Institute Index of Consumer Sentiment saw the single biggest monthly decline in the 47-year history of the survey and witnessed a sharp drop of 17.7% to reach 75.6 from 91.9 in March 2020. The massive decline has pushed the Index past the GFC lows to levels that were only seen during the deep recessions of the early 1990s (64.6) and early 1980s.
The “very disturbing” details of the survey reflect on the large shocks to jobs as well as spending. The collapse in confidence in the housing market comes as a major revelation with assessments of both ‘time to buy’ and ‘price expectations’ plummeting to the most pessimistic levels since the global financial crisis, where,
- Biggest monthly decline on record was seen in ‘time to buy a dwelling’ index that dropped 26.6%
- The house price expectations index dropped even more sharply by more than half (–50.8%) to just 69.7
The plunging confidence of consumers amid the current scenario truly reflect the impact of the covid-19 on the housing market. The housing market is feeling the heat from job losses, reduced spending, and loss of confidence around the economy.
Moreover, with no sight of the lockdown to be completely lifted, experts also speculate for social distancing measures to remain in place for a significantly longer period of time, and this could drag the economic growth. Individuals might be more conservative of shopping and would want to preserve cash for use during uncertain times.
With the record drop in just a month’s time, the pessimism in the market and conservative attitude of the individuals shall lay a significant impact on the housing market of Australia.
The spectacular slowdown in the economy caused due to the lockdown and social distancing measures and subsequent implications like job loss, liquidity crisis, etc. have put the Australians in the state of high anxiety.
These anxieties in the environment are prominent on the property front with declining expectation. Moreover, speculations regarding the fall in the housing prices were prevalent since the visible implications of the covid-19 were implemented.
Role of Major Banks
However, the government had initially announced an economic support package for ensuring Australians remain in their jobs and allowing banks to allow mortgage repayment, which can limit the forced selling of the property to some extent.
Moreover, the big four banks of Australia, namely Commonwealth Bank of Australia (ASX:CBA), National Australia Bank Limited (ASX:NAB), Westpac Banking Corporation (ASX:WBC) and Australia and New Zealand Banking Group Limited (ASX:ANZ) have announced coronavirus mortgage relief for about three to six month in order to support borrowers navigate through these challenging times.
- NAB has also allowed its eligible customers to access a home loan repayment break of up to six months and has announced lower interest rates on some specific new fixed-rate loans.
- CBA has allowed its home loan customers to defer their repayments for six months, with interest being added to their home loan and has decided to compensate any interest levied on the interest during the six months by making a one-off payment.
- ANZ is allowing its borrowers to pause home loan repayments for six months who are experiencing financial difficulty amid COVID-19 and has reduced the standard variable home loan rate by 0.15 per cent p.a.
- WBC is offering a three-month deferral on the home loan repayments with an increase of additional three months available after review, for its home loan customers who have lost their income or their job due to COVID-19.
With the intensifying implications of the coronavirus pandemic across all sectors of the economy, one may expect the property market to lose some charm for at least a considerable period of time. However, the fiscal, as well as economic stimulus measures, can help to shield the property market from a severe downturn.
Also, since the Covid-19 curve is said to be flattening, the government would want to rethink the durability of the lockdown and cautiously begin opening economic activities that are of essential nature.
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