Nudging the trends in Property Space: Uptick in Auction clearance rates but housing prices expected to fall

Australian property market is under the scanner amidst weakness in economic conditions, bleak consumer confidence and considerable variations in the Australian dwelling markets. Coronavirus induced lockdown has resulted in business shutdowns, giving rise to unemployment and leaving people with less money to bid up property prices.

As per NAB Housing market update, most AU regions noted an increase in home values through April, however the monthly growth dipped by more than 50%, dropping from 0.7% in March to 0.3% in April. This is worrisome compared to average 1.1% value growth observed during six months prior to March 2020.

Besides, Core Logic modelling suggests that residential property sales seem to have been dropped by 40% in April across Australia, driven by a drop in consumer confidence and job losses.

Volumes witness a slight uplift

As per Property market agent Core Logic, the clearance rates were recorded at 62.5% during the March quarter across 18,902 auctions throughout combined capital cities, down from 70.3% across 26,923 auctions in the December quarter. Tighter restrictions, bans on onsite and in-room auctions and uncertainties on coronavirus had hit the clearance rates.

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However, Core Logic stated that combined capital cities reverted a preliminary auction clearance rate above 70% this week. The week has observed the highest preliminary result since early March i.e. before the lockdown was imposed.

Clearance rates enhanced across greater volume of auctions with 613 auctions on the list. Although the volumes have been elevated when compared weekly, they stay considerably softer than usual, with 2055 dwellings to auction in the same week of 2019.

Sydney has been the busiest market over 7 of the last 8 weeks. About 319 homes are scheduled to be auctioned this week with a preliminary clearance rate of 77.9%. While in Melbourne, about 160 auctions are on the list to give a first round auction clearance rate of 72%, higher than 57.3% last week. Small cities like Canberra recorded the highest preliminary result of 73.2% success rate across 61 auctions.

The firm expects that volumes are expected to rise gradually in coming weeks as ban on onsite auctions and inspections are relaxed, while agents and vendors have the chance to start employing marketing campaigns.

Experts view on Property scenario

Core Logic Head of Research, Eliza Owen stated that drop in the property values have been mild but there are other factors also that must be considered. Downturn is not a time to buy a house just because it is affordable unless income is steady and there is certain amount of confidence.

Property prices are anticipated to drop not more than 10% over the next 1-2 years or at least until there is some recovery in jobs and wage growth. She adds that transaction volumes, consumer sentiment and listings have fallen. However, the new normal of low transaction activity is beginning to stabilise. People are more careful to buy property now as it has high cost and people are not sure about their jobs.

Louis Christopher, SQM Research founder stated that housing market could impact different people in different ways drastically. He added there is a lot of uncertainty in the market and people looking out to buy houses must wait.

He noted that there are no bargains at present. With massive quantitative easing and interest rate cuts, dwelling prices might rise just because of these 2 factors. So, nothing can be said.

Falling rents and migration

The price of rentals has taken a huge hit due to coronavirus havoc. The Australian economy has been supported by a steady flow of migrants. When people come to Australia, the first thing they do is rent a property rather than buying a home in their first-go. Such demand has faded as coronavirus has turned off migration in the country.

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Tenants are in a much better position to demand lower rents as coronavirus crisis has left landlord with no choice but to at least fill the vacant properties. As per SQM research statistics, rents for properties in Sydney have fallen to lowest point since 2013 due to lower migration, empty Airbnb properties due to travel bans and economic standstill. Rents have also dropped quite quickly for Melbourne.

Paul Bloxham and Daniel Smith, HSBC economists stated that even though interest rates are at historic lows which must help housing prices, halted migration, rising unemployment and coronavirus economic jolt will chew over the demand for properties.

Accepting that house prices prediction is difficult, HSBC expects prices to fall between 2% and 12% with a much greater correction in 2 biggest capital cities of Sydney and Melbourne due to their greater reliance on migration and foreign students which has halted due to border restrictions. Sydney can witness price falls between 5% and 15%, while Melbourne can see drop as large as 17% next year.

Commonwealth Bank has laid out a base case with price fall of 11% in house prices assuming economic slump and even 32% fall if there is a prolonged downturn.

Bottomline

With some activity seems to be picking up in property space, Australians buyers are being rewarded by the sellers at a price sought by the buyers. Some investors might come back into the market even if rents are falling but there is a lot uncertainty on when the economy will recover from the current shock.

Even though rates are lower, economic uncertainty, soaring joblessness and border restrictions are expected to continue pressurising the housing market.