How Will Coronavirus Affect The Housing Market In Australia?

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Over the past few weeks, the impact of the coronavirus crisis on the economy has become clear: we are headed for a recession. The exact impact the novel coronavirus will have on the housing market in Australia is less clear, though it will certainly have an effect.

For those considering selling their house in the near future, there’s a lot to think about. We look at experts’ predictions on how the coronavirus crisis will affect house prices and the property markets in Australia.

With the immediate impact on the housing market unclear, and likely to vary from state-to-state, even suburb-to-suburb, we advise speaking to a local real estate agent to understand the situation in your area.

Will coronavirus cause a recession?

Yes, it seems certain that the coronavirus crisis will cause a recession. The unprecedented shutdowns and social distancing measures here in Australia and across the world will have a huge impact on the global economy.

Small businesses, especially in hospitality and retail, have already taken a big hit that only looks set to become worse in the immediate future as government advice and policies on self-isolation and social distancing become stricter, and the travel industry has been decimated. Unemployment looks set to rise sharply, consumer confidence is extremely low and global and local share markets have plummeted.

Travel industry decimated by coronavirus
The travel industry has been decimated by coronavirus, with flow on effects to the rest of the economy

The Federal Government has put a stimulus package in place to try to avoid a recession, and are set to put further stimulus measures in place.

The Reserve Bank has made an emergency cut of rates to 0.25%, in the first change to rates outside of a regular meeting since 1997. This was after cutting rates to 0.5% earlier in the month – which was at that point an all-time low.

But these measures are more likely to soften the blow of a recession, rather than avoid it altogether.

What will happen to the Australian housing market if there’s a recession?

It’s highly likely that a recession caused by the coronavirus crisis will result in fewer buyers on the market. But it’s uncertain what immediate effect this will have on house prices.

Property prices are much less volatile than the share market, being an illiquid asset with high transaction costs and long settlement periods.

As Eliza Owen of CoreLogic points out, the Australian property market has fared relatively well in past recessions. Share market losses and economic shocks are not always predictors of declines in house prices – the share market and the housing market perform differently.

So far, the CoreLogic home value index is showing the coronavirus hasn’t impacted the Australian property market in the same way it has the share markets.

Coronavirus share market and house prices
Recent data shows house prices have not been as volatile as the share market

The housing market is much less volatile than share markets for two main reasons: it’s illiquid nature (meaning ‘sell-offs’ are less likely) and the fact it has a low percentage of investment-based purchases (relative to share markets).

Auction clearance rates have remained healthy so far and there were still a large number of auctions in Sydney and Melbourne in previous months. However, it’s very likely now that auction numbers will drop off sharply as social distancing measures become more extreme and widespread.

Shane Oliver of AMP Capital is more pessimistic about the impact of coronavirus on Australian house prices – he believes prices could drop by as much as 20% under a worst case scenario, if the unemployment rate rises to double digits.

Dr Oliver suspects Australia is already in a recession, and thinks this, along with high levels of household debt, has the potential to cause a deep contraction in the market.

However, if the recession is short and the unemployment rate stays below 7.5%, he predicts prices will only increase by around 5% and should bounce back quickly.

Selling your house during the coronavirus crisis

With the volatility in global and Australian share markets and the very real threat of a recession, it is an uncertain time to sell your house. So far property prices have remained strong, but it’s unclear what will happen to prices in the short and medium-term.

It’s also unclear how the impact of the coronavirus will vary across different states and suburbs.

If you are considering selling your house and are unsure whether you should delay putting it on the market, our advice is clear: speak to a local real estate agent who knows the current conditions in your area. Ask them what they are seeing in terms of recent interest from buyers, recent sale prices and clearance rates, and how they see these variables changing over the next few months.

Coronavirus real estate agent local housing market
Talk to a real estate agent to find out about local housing market conditions – on the phone!

It’s a very good idea to talk to multiple agents to get multiple views and opinions on the situation. Be wary of agents who might put pressure on you to sell – looking at reviews and getting in touch with an agent’s past clients will give you a good idea of how trustworthy an agent is.

REA (realestate.com.au) and Domain (domain.com.au) have both announced relief measures that allow free re-listings for listings uploaded between March and June 2020. This draws away some of the risk in marketing costs should the property remain unsold. Make sure to speak with your real estate agent about how you could best utilise these support packages.

Our real estate agent comparison tool is a great way to find and compare local agents in your area based on reviews and past results. If you’re thinking of selling your house over the next few months, we suggest you use this tool to find agents to speak to:

Will the government stimulus packages stop house prices falling?

The Federal Government has put a stimulus package in place, and is likely to deliver a second package, to try to avoid or soften the blow of a coronavirus caused recession. This should help the economy, but there will most likely be a limit to what can be achieved by the government in this situation.

With the economy suffering, house prices will most likely be affected and it’s very likely there will be a large reduction of buyers in the market.

Nigel Stapledon writes in The Guardian that the reduction in buyers will take the momentum out of the market, which will probably result in house prices falling. As well as potentially being scared away by uncertainty, many potential buyers may have lost money in shares, reducing their buying capacity.

Looking ahead to 2021 – will the property market bounce back when the coronavirus crisis is over?

Looking forward to 2021 and beyond, once the coronavirus crisis is (hopefully) over, will the housing market bounce back and keep growing? Most experts are confident that things will get back to normal, but things are certainly hard to predict at the moment.

Coronavirus housing market long-term outlook
Looking ahead to 2021 – will coronavirus still be affecting the housing market?

Nigel Stapledon expects there will be a strong rebound in 2021, after a short, sharp shock to the economy in 2020. He sees 2020 as being a very tough year for the economy, but as people eventually settle back into normal routines and start going out shopping and to restaurants again, the market will recover.

Shane Oliver sees the unemployment rate as being a strong indicator of how quickly things will bounce back. Under his base case scenario, unemployment will rise to around 7.5% and house prices will fall by about 5%. However, under this scenario, prices would start to strongly rebound over the next year as the economy recovers and demand is driven by what are now all-time-low interest rates.

The government stimulus packages and Reserve Bank interest cuts will hopefully stop the recession from lasting too long and keep unemployment rates below 7.5%. However, if the recession is longer than expected and unemployment rates are pushed up beyond 10%, house prices could fall by as much as 20% and the market will take much longer to recover.

How will different suburbs and states be affected?

It’s hard to predict how the likely recession caused by the coronavirus crisis will affect property prices across different states and suburbs. A lot will depend on the strength of the markets before the coronavirus outbreak, and also on the local situation of the outbreak.

What is clear is that the coronavirus has hit all across the nation, so every state will be affected.

To get the clearest picture on how the local housing market in your area will be affected, we strongly advise speaking to a local real estate agent. You can use our tool to find real estate agents in your area.

Talk to a local real estate agent for advice

Though it seems certain we are headed for or have already entered a recession, the level of impact coronavirus will have on house prices, and the Australian housing market in general, is less certain. It seems likely that prices will fall in the short term, or at least stagnate, but it’s hard to predict by how much – and when they will start to bounce back.

If you are considering selling your house, our best advice is to speak to a real estate in your area to get their view on local market conditions. They will have the local knowledge and experience to advise you on what to expect.

Use our real estate agent comparison tool to find and compare agents in you area: