Capital markets: Before and after COVID-19

From 25 March, the federal government introduced restrictions on real estate practices to curb the spread of COVID-19 infections, including the banning of public auctions and open homes. However, prior to this, detached houses in every capital city held strong or increased in value in the three months to 31 March.

Sydney saw the strongest gains in house prices over the quarter at 2.6 per cent, followed by Hobart (2.2 per cent), Melbourne (2 per cent), Darwin (1.2 per cent), Brisbane (0.6 per cent) and Canberra (0.3 per cent).

Adelaide and Perth saw house prices remain steady quarter-on-quarter. However, these markets saw gains in their unit prices of 4.2 per cent and 1.6 per cent, respectively.

Sydney’s market saw a 2.7 per cent rise for units, while units in Hobart held steady over the quarter. Meanwhile, all other markets saw drops in the value of units.

With most of the reporting period taking place prior to the government’s social distancing regulations, Domain anticipated that future housing value figures won’t look as strong.

Sydney

The first quarter of 2020 saw Sydney take the prize for strongest annual outcome since mid-2017, according to Domain, with house values jumping by 13.1 per cent, and units 8.5 per cent, with values almost returning to their peak levels.

However, data suggests that the COVID-19 outbreak and economic slowdown began to impact the market in Sydney by mid-March.

“New listings began to fall, suggesting vendors were becoming hesitant. This caution heightened in April with even fewer homes listed for sale, suggesting few forced sales,” Domain said.

Domain stated that signs suggest the Sydney market had begun to slow its rate of growth even before the pandemic hit.

“A combination of weak wages growth and rising prices had once again stretched affordability for some buyers, while a rise in new listings early in the year had helped to service demand.

“As a result, quarterly house price growth had slowed to less than half, and unit price growth one-third lower than the previous quarter.”

Melbourne

Melbourne property values were at an all-time high by the end of the March 2020 quarter, with houses in the Victoria capital seeing growth for four consecutive quarters.

Houses saw double-digit gains year-on-year for the first time since 2017, while unit prices achieved the same for the first time in over a decade. However, these results are expected to be short-lived considering the new market conditions post-virus.

“The uncertainty [of the market] forced vendors to drop asking prices, one in 10 listings had a price revision down in the first three months of 2020, compared to only 3 per cent in the final quarter of 2019.

“This peaked at 13 per cent in March. These early signs suggest a broader market slowdown is anticipated as vendors seek a timely sale in fear of what may be ahead,” Domain claimed.

According to Domain’s data, new listings in Melbourne have dropped by 11 per cent between mid-March and mid-April.

“The rapid cautionary response from sellers will be counterbalanced against a drop in buyer demand. This should result in property prices faring better than transactions in the months ahead.”

Brisbane

Brisbane saw a more significant drop in new listings in the four weeks to mid-April of 20 per cent, with vendors likely becoming too scared to sell, due to the ban on auctions and open homes.

“Social distancing restrictions that banned open homes and auctions will also slow buyer activity, as well as low consumer sentiment, economic uncertainty and job security fears deterring buyers,” Domain said.

However, Domain stated that low interest rates, government stimulus and mortgage payment relief measures could “shelter” housing prices from the anticipated drop in market activity.

Adelaide

Adelaide was one of only three capital cities to record stable or rising prices for both houses and units in the first quarter of 2020, along with Sydney and Hobart.

House prices hit a new high over the quarter, while unit values sit just 0.7 per cent lower than their mid-2019 peak.

However, South Australia’s unemployment rate is currently the highest in Australia, with the employment rate set to take another hit amid the COVID-19 pandemic, which has the potential to impact greatly on the market in the SA capital.

“With many now jobless, others facing uncertain employment security and the likelihood of a recession, plummeting consumer sentiment will deter buyers in the short term until the coronavirus is contained,” Domain stated.

However, the property group also stated that Adelaide may be better “insulated” from the market downturn than other capitals, as it is largely an owner-occupied market, and a drop in buyer demand could be offset by a reduced number of listings.

Perth and Darwin

Both Perth and Darwin’s markets have faced a slow recovery in recent years and are likely to be hard hit by the economic fallout of the COVID-19 pandemic.

In Perth, houses flatlined quarter-on-quarter to be down 1 per cent compared with 2019, while in Darwin, units saw the steepest quarterly fall in two years. Like other markets, Perth and Darwin are set to see a drop in new listings and a slowdown in the overall market, which could lead to a drop in values in these already unsteady markets.

Canberra and Hobart

According to Domain, the economies that are heavily reliant on tourism and education, such as Canberra and Hobart, will be hit harder than other capital cities.

The Canberra housing market has seen steady capital growth over the past seven years and grew 0.3 per cent in the quarter to 31 March, while Hobart’s values hit a new record high prior to the COVID-19 restrictions.

Both cities are quite reliant on domestic and international visitors, although Domain noted that Canberra’s strong public sector presence and low unemployment rate could “cushion” some of that expected fall.

According to Domain, Hobart’s reliance on tourism makes it “likely [to] be more exposed to the economic shock of the coronavirus pandemic than other Australian cities”.

However, this impact could be short-lived, according to the property group.

“Considering this is a short-term impact, the economy will open up again, although it is likely to take some time for tourists and migrants relocating from interstate and overseas to return, given many parts of the globe are being severely impacted by COVID-19.”