Will Australia's Property Market Crash?

House prices will definitely crash…unless they don’t. COVID-19’s health and economic ramifications has impacted all property markets albeit in different ways in different jurisdictions. The initial shock of the lockdown measures and banning of home opens, impacted immediately with thousands of east-coast auctions cancelled and sales activity dropping to about half recently averaged levels.

The big auction cities of Melbourne and Sydney scheduled 590 auctions last week in contrast to the same week last year when 1479 homes were taken to auction. Interestingly, clearance rates have marginally improved, probably because current sellers are genuinely prepared to meet the market.

Back home, we’d had six straight days of no new coronavirus cases, schools have reopened and there’s burgeoning optimism that other emergency restrictions will gradually soften from here. There’s a sense that ‘the worst is over’. That may prove to be false hope but based on REIWA’s sales activity data, weekly sales in the metro Perth is around 400, down about 30 percent on last years’ average, a 20 percent recovery from when COVID-19 first hit.

Stock levels are tracking much lower with new listings coming to market down by 46 percent compared to this time last year; the biggest fall in new capital city stock apart from Darwin. There are 18 percent fewer new listings in Sydney and Melbourne’s new stock has fallen by 27 percent. The higher level of new stock coming to market in Sydney and Melbourne is, in part, due to fears of retreating values from vendors keen to catch the market before it falls. In Perth, total listing levels remain below 12,000, 26 percent below last years’ numbers making for less choice for buyers.

All things considered, prices are holding up well across Australia; for now. According to Core Logic, home values in Sydney, Brisbane and Adelaide all improved in April by 0.3 percent, in Melbourne they dipped 0.5 percent and Perth improved by 0.2 percent.

Anecdotally, most local agents experienced significant buyer traffic through homes last weekend, with multiple offers made on new-to-market stock in particular. This current short supply, high demand market is the obvious reason prices are stable, a legacy from the Perth market in its early stages of recovery after several years of market malaise. This pent-up, legacy demand along with our success in curbing the spread of COVID-19 and familiarity of a flailing market, puts us in a far better position than that of our east coast cousins.

I am not surprised that Sydney’s and Melbourne’s property markets, underpinned by their service industry led economies, have been hit harder than our local market. Most property experts reckon property values in Australia will fall an average of 10 per cent this year. I’d wager Perth’s property prices will hold up substantially better than that.

Demand for our resources will underpin the economy, no-new COVID-19 cases will re-open our domestic economy sooner than the eastern cities and with listings low and funds cheap, values should hold for the time being.

The economic impacts of COVID-19 are yet to fully play out, but with what we’ve seen so far, Perth property values ought to retreat less than that likely felt on the east coast.