Home values rise in March but uncertainty looms for property market, new figures show

Home dwelling values rose in almost every Australian capital city during March as the housing market continued its rebound, new figures show, but the outlook is now uncertain as coronavirus-linked economic weakness takes hold.

Sydney dwelling values led the nation, rising 1.1 per cent over the month of March to a median $882,849, the CoreLogic March Home Value Index showed. The figure comprises both houses and units. 

It’s a 13 per cent lift over the past year, amid a broad recovery on the back of the clear federal election result last May, a string of interest rate cuts and regulatory moves to let buyers borrow more.

Melbourne values gained 0.4 per cent over March and 12 per cent over the past year, reaching a median $695,299, the index found.

Across the country, national dwelling values rose 0.7 per cent in the month. This was the lowest monthly gain since the market lifted in July last year, with the second half of March affected by a fall in confidence and stricter social distancing policies to combat coronavirus such as the shift of public auctions to virtual auctions or private sales.

Showing the momentum that had built up in the market, national values rose at an annual pace of 7.5 per cent – the highest since the end of 2017 when the market was coming to the end of a five-year bull run.

Brisbane values rose 0.6 per cent over the month, while Perth gained 0.5 per cent, Canberra added 0.6 per cent, Darwin jumped 2 per cent and Adelaide rose 0.3 per cent.

Only Hobart fell, with values slipping 0.2 per cent in March after the city’s prices had risen to relatively unaffordable levels.

CoreLogic head of Australian research Eliza Owen said the price rises reflected the ongoing momentum that was evident from the start of the March but slowed at the month’s end.

“We are seeing a slowdown in momentum in the growth rate now, but it’s coming off the back of a very strong period of growth over the last eight months,” Ms Owen said.

“I think there will be a slowdown in growth which could move into negative territory in the coming months. It’s hard to say to what extent that would be.

“But it basically comes from higher levels of unemployment, which puts downward pressure on wages and the ability to purchase property. It comes from very strong declines in consumer confidence which will see a lot of potential buyers sitting on their hands.”

She has noticed the number of reports into comparable sales results generated by real estate agents on the group’s platform has halved in recent weeks, suggesting listings volumes are set to fall. Polling of agents also indicated a fall in buyer and seller enquiries, she said.

“Although Australia’s housing markets have begun to enter a period of disruption, they are coming from strong foundations,” CoreLogic head of research Tim Lawless added, flagging a likely recession and period of uncertainty.

“The housing market won’t be immune to a drop in sentiment and weaker economy, however the extent of the impact on dwelling values remains highly uncertain. Capital growth trends will be contingent on how long it takes to contain the virus, and whether additional constraints on business or personal activity are introduced.”

He expects the number of residential sales to fall “dramatically” as unemployment rises, consumer confidence drops, lenders become more cautious, and restrictions affect open homes.

But housing values are likely to be more insulated given government stimulus, record low interest rates and lenders’ hardship provisions for distressed borrowers that will allow many mortgage holders to freeze repayments for six months.

“The extent of any fall in housing values is impossible to fathom without first understanding the length of time this health and economic crisis persists,” he said. “Arguably, the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values.”

Domain senior research analyst Nicola Powell said property markets across most cities had been gathering momentum last year and early this year, with buyers taking advantage of easing credit and interest rate cuts while home owners were increasingly willing to list their properties as prices ticked up, but a period of uncertainty now loomed.

“Job security is a big one and anybody in an industry that has lost their job, or has uncertainty around their future job security, certainly will be holding back in any property decision,” Dr Powell said.

“So I think we will see a pull-back in buyers because of that.”

So far, transaction rates have been holding up – except for the last weekend in March when auctions were banned suddenly, she said.

Although she expects a pull-back in buyers, what happens to prices is “less clear” given the significant government stimulus package and banks’ moves to pause mortgages that could offer support to the market and reduce the amount of distressed selling.

“That will help many home owners through this extraordinarily uncertain economic time,” she said.

“If we didn’t have that element of pause we would see a lot of distressed home owners who couldn’t meet their mortgage repayments.

“It’s likely that we will see a softening in price because it’s so uncertain, but as soon as we see that virus contained we will see a strong rebound in prices because we will see pent-up demand.”

When the Domain House Price Report for the March quarter is released this month, Dr Powell expects similar results showing relatively strong quarterly growth.

Ray White managing director Dan White said most of March was a strong month, with high auction clearance rates, good volumes of listings and strong buyer activity, before the number of listings fell over the past week.

“The market will be self-regulating to an extent,” he said.

“Much less stock in the market being chased by a smaller buyer pool will hold values at least for a period of time.”

Some nervous vendors have been withdrawing their homes but a core group hopes their property will stand out more and is still willing to test the market, he said, while any potential buyers looking to inspect now are people who are serious about buying.

He also highlighted the government stimulus and mortgage freezes as factors that could put a floor under prices.

Professionals chief executive David Crombie said there was still activity happening, although some vendors had taken their homes off the market as they didn’t want even private inspections to take place.

“I think sales will drop but we take it day by day. We don’t know what the government’s going to announce tomorrow,” he said.

“With the stock market [falls] and what’s happening with people’s super, property may be a better option.”

The group is adapting to virtual tours and the two-person rule for gatherings, and his offices have had their normal membership fees halved for the next three months.

AMP Capital chief economist Shane Oliver tipped sales to slow to a crawl in the months ahead and prices to fall as coronavirus shutdowns hit the housing market and wider economy.

“Sellers and buyers are likely to put property transactions on the back burner to avoid catching the virus and in order to comply with social distancing requirements,” he wrote in a note to clients.

“More significantly prices are likely to fall as unemployment rises triggering debt servicing  problems for some against the back drop of very high household debt levels and high house prices in Australia and depressing property demand even for a while after the shutdowns are relaxed.”