Home value growth slows in April amid COVID-19, new research shows

Home values edged down in Melbourne during April and rose at a slower pace in other capital cities as the coronavirus-linked economic uncertainty started to take its toll on the housing market.

Melbourne home values slipped 0.3 per cent last month to a median value of $695,761 – a figure that includes both houses and apartments – according to the latest CoreLogic Home Value Index, released on Friday.

Sydney home values gained 0.4 per cent to a median of nearly $890,000, a noticeably slower rise than the 1.1 per cent growth reported a month earlier.

Values edged up 0.3 per cent in Brisbane and 0.2 per cent in Perth, while Canberra values held steady and Hobart fell 0.1 per cent.

CoreLogic head of Australian research Eliza Owen said despite a decline in momentum, values largely had not yet fallen into negative territory as property is a slower moving and more stable asset class.

“We have started to see price declines in parts of Melbourne and Hobart and we expect this trend will continue and property prices will fall further,” she said.

Melbourne may be more reliant on demand from overseas migration, particularly in the rental market, while the city also faces affordability constraints after reaching a record high for values in March.

The pandemic hit when most markets were in an upswing on the back of falling interest rates and many Australians in the first- or second-home buyer age bracket, she said.

“But ultimately those demand factors were coming up against a cap based on affordability,” she said.

“There’s only so much people could pay for property against relatively weak wages growth even before the coronavirus.”

COVID-19 has also changed the process of buying and selling homes, another factor in the monthly figures.

“Although housing values were generally slightly positive over the month, the trend has clearly weakened since mid-to-late March, when social distancing policies were implemented and consumer sentiment started to plummet,” CoreLogic head of research Tim Lawless said.

The weaker price growth comes amid strict social distancing rules that forced open home inspections to be replaced by private tours, and public auctions to switch to either virtual auctions or private sales.

Rising unemployment and curbs on immigration are also negative for the housing market, although a range of stimulus measures such as wage subsidies and mortgage freezes could put a floor under any price falls.

The national monthly pace of growth more than halved to 0.3 per cent, from 0.7 per cent in March, the smallest monthly movement since June last year.

Mr Lawless said the Sydney and Melbourne markets were more at risk given their exposure to overseas migration, already stretched affordability, and low rental yields set to fall further as rents drop.

He also highlighted the fall in Hobart values.

“Hobart has the most exposure of any capital city, at least proportionally, to the industry sectors most heavily impacted by COVID-19 in terms of employment, with 12.7 per cent of the workforce employed within accommodation and food services, and arts and recreation services sectors,” he said.

The group estimates the number of settled sales dropped about 40 per cent in April as potential buyers and sellers sat on their hands, and also noted a pre-Easter drop of about 60 per cent in research by real estate agents preparing for sale.

Domain senior research analyst Nicola Powell said while it was too early to see the full impact of the pandemic, several measures would support the market.

“We have got the ability to pause our mortgages so that will help support prices in this period,” she said. “Interest rates are extra low, which does help to aid mortgage affordability, and we have the JobKeeper package which should help keep more Australians in jobs.

“All of these things will help to mitigate any extreme levels of distressed selling.”

Melbourne’s price fall was unsurprising given the city’s strong rebound after the 2018-19 downturn, meaning prices were falling from high levels.

Dr Powell also warned Hobart was exposed to overseas and interstate migration, with an economy driven by tourism and hospitality.