As Melbourne heads back into lockdown, the headlines are still painting a very negative picture for the Australian property market as a whole.
The latest data from CoreLogic is suggesting that house values have fallen modestly over the past two months and now with limited auction activity in Melbourne for the foreseeable future that could contribute to further falls.
Interestingly, uniformly falling prices are simply not what we’re seeing on the ground at the moment. In fact, it’s actually quite the opposite in quality homes located in desirable locations.
In high-quality areas both in Sydney and Melbourne, demand is very strong. So much so that there is little price discounting occurring, if any at all as there is a shortage of supply.
With listing volumes remaining low, buyers are finding it increasingly difficult to secure quality properties and that is making for added competition. That’s actually putting upward pressure on house prices and we’re seeing that if you take your time waiting for the “October Cliff” you may be disappointed as other buyers simply don’t seem to want to miss out.
This is in stark contrast to the latest update from CoreLogic, which suggested it was the upper-quartile of houses that had been seeing price falls – particularly in Melbourne.
If anything, we would expect to see price falls in those outer suburb areas and inner-city CBD locations where there is an oversupply of generic investment grade product available, however, currently even those have remained resilient. The sheer volume of Government incentives is one reason this segment of the market is likely holding up at the moment as well as ultra-low interest rates. Clearly, these are still not areas investors should be looking at in my opinion.
With the next stage of lockdowns taking place we only have to look back to what happened last time around to see what the impact might be for Melbournians.
It’s highly likely that both vendors and buyers will retreat to the sidelines over the coming weeks and both listings and transactions will fall away sharply. There will be sales taking place, but many will be off-market.
As we saw the last time around, this is likely to be a short-term phenomenon and on the other side, I believe we’ll see a relatively quick recovery, both with transaction volumes and the overall auction clearance rate.
Interestingly, auction results had recovered strongly, before the second wave of COVID forced another shutdown. Sydney recorded a 64.3% clearance rate which was similar to the prior week, while Melbourne did dip to 44%, but given the circumstances and how the numbers are calculated, that is not a bad result.
So far, the downturn in property prices has been very mild, to say the least. When the lockdown measures are lifted, there will again likely be a high level of demand and combined with low-interest rates and host of incentives, housing activity will no doubt bounce back just as it did previously.
We can also see how the response from housing markets has been tracking with the overall sentiment.
Consumer Confidence: Source ANZ
After falling away to a record low level in March, consumer confidence almost returned to a measure of optimism. The latest shutdown measures from Victoria are sure to see that recovery slow for quite a few weeks, but we should expect that to once again start to rebound as the medical response improves.
The chart of consumer confidence closely tracks transactions and auction clearance rate, which tells us just how important that is for house prices.
That said, if you have the ability to borrow, then it is still a good time to be looking to buy if you are focused on blue-chip areas or looking for a first home.
These areas that have great amenity and high owner-occupier appeal will continue to hold up strongly and may even increase in value if listings remain low throughout 2020. As I’ve been saying a lot recently, there seems to be no real discount for quality at the moment.
The future will clearly be affected by how well the spread of the virus is controlled in the short term and allows for the economy to gradually reopen nationwide.
related tag: Australian Property Investment Advice