Australian property prices are tipped to fall as COVID-19 creates multiple headwinds, despite Aussies having intention to buy, two economists have said.
CBA chief economist Stephen Halmarick said the economic shutdown will impact consumer spending in a variety of categories with the intention to purchase property not immune to the down side.
Mr Halmarick pointed out that while people were feeling confident with home buying intentions in March, the latest market data indicates residential property prices may fall by up to 10 per cent over the next six months.
This is despite Commbanks’ March data revealing the intention to buy property was nearly at an all-time high.
“Looking at our home buying intentions series in March 2020, people were feeling confident with spending intentions sitting close to all-time record highs. Since then, we have seen turnover in the housing market decline significantly after public open houses and auctions were banned, with rising job insecurity also being a factor,” Mr Halmarick said.
Commbank explained that under normal circumstances “the RBA’s substantial monetary policy easing over March has seen mortgage interest rates fall, and this would be expected to support buying intentions”.
According to Domain economist Trent Wiltshire, subdued population growth, particularly net over search migration (NOM), would add to housing market headwinds.
“Lower immigration means reduced demand for property, which will put downward pressure on prices,” he said.
“Lower population growth will be one of a number of factors that will contribute to property price falls in 2020. Other factors are rising unemployment and concerns about job security, expectations of price falls, larger households due to people wanting to save money, some forced sales, and restrictions on transacting real estate (such as the ban on auctions and open for inspections).
“Property sales are likely to decline by even more than prices.”
“In recent years, Sydney has tended to attract a large number of migrants, but then lose residents to other cities and regions,” he said.
“So, it’s possible that Sydney and Melbourne will be hit hardest by the reduction in migrants, which would mean a larger fall in property prices in Australia’s two largest cities.”
The economist added that as a result of the dip in population growth, housing construction activity would also wane.
“Housing construction looked to be turning around in late 2019, with approvals and commencements bottoming out and property prices, a leading indicator of construction activity, rising,” he said.
“But weak population growth in the year ahead will likely mean low rates of home building for at least the next year,” Mr Wiltshire concluded.