The COVID-19 epidemic presented potential risks to specific sectors of the economy – what could it potentially do for the housing market?
Eliza Owen, head of residential research at CoreLogic, said that although sales activity will likely be affected, housing prices should not necessarily drop. She said that the residential real estate sector has historically weathered adverse economic shocks well compared to other sectors such as the stock market.
For example, the stock market crash of the "black Monday" of 1987 which resulted in a 23% loss in value in a single day did not affect residential values.
"In October 1988, the value of residential properties experienced double-digit growth, with financial deregulation contributing to inflation in asset values," said Owen.
A similar scenario occurred during the global financial crisis from 2007 to 2008. While the national value of housing declined in January 2009, increased investment related to mining and the multitude of rate cuts and government measures led to a rapid recovery.
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Owen said the coronavirus epidemic is likely to temper consumer sentiment, which in turn will moderate the volumes of real estate transactions. The likelihood of isolation measures, for example, will limit open days.
"In the short term, the coronavirus and subsequent declines in the equity market have already had a significant impact on consumer confidence. This can lead to postponement of home purchases, because housing is a decision to make. expensive and high commitment purchase, "said Owen.
Despite this, the value of houses does not necessarily drop. Owen said that many suppliers may view the current pandemic as a "temporary economic condition".
"If monetary and fiscal stimulus can adequately support business and household income in the context of the slowdown, then the coming months could see a sharp contraction in sales volumes, but not necessarily in housing values" said Owen.
Expectations of return from market activities would likely cushion any drastic impact on property prices.
The situation would therefore be similar to the high seasonality of sales volumes generally observed around annual vacation periods.
Over the past two decades, sales activity in the months of November and December has decreased on average by 15.9%. Despite this, prices rose 0.2%.
"Although the current pandemic is by no means a public holiday, it is temporary. Unless the current downturn significantly impedes income, sellers may not see the need to reduce their real estate value expectations, "said Owen.
This means that property is less volatile and slower to respond to market shocks, said Owen.
"It is a consumer good and it is linked to the fundamentals of employment opportunities and income growth. In the current climate, the Australian housing market is more isolated from foreign demand and investment speculation than it has been in previous years, "she said. .
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