There is still uncertainty about what will happen to house prices during and after the COVID-19 epidemic, but rents will likely be more affected by adverse economic risks, according to a recent study by CoreLogic.
Eliza Owen, head of residential research at CoreLogic, said that negative economic shocks do not necessarily lead to sharp drops in real estate prices.
"At the start of COVID-19 and the resulting economic downturn, the operating environment for the housing market changed completely. Overall, the Australian housing market is now at the dawn of yet another slowdown, "she said.
The housing market is gradually opening up again, with states reestablishing open houses and on-site auctions. Owen believes, however, that demand should fall steadily due to the upside risks to unemployment and the slowdown in overseas migration.
The volume of residential sales across the country fell 40% in April, due to the collapse in consumer confidence. On the other hand, housing values ??have only shown a slight slowdown.
"In early May, the value of housing in capitals fell by less than half a percent over a month, led by Melbourne, where values ??fell by about a half percent, "said Owen.
Owen believes that the slowdown in housing due to the COVID-19 epidemic is of a temporary nature. This means that potential sellers could simply suspend the sale until the economy fully reopens.
"The property does not see the same declines as stocks during a downturn, because it is used for living and therefore not as speculated as stocks. Furthermore, it cannot be bought and sold as quickly as stocks , which means that price movements are not as volatile, "she said.
The economic risks of COVID-19, said Owen, could potentially be more severe in the rental market. Rental prices in Australia fell 0.4% in April, with Hobart reporting the largest drop to 1.1%.
"Rental markets have been particularly hampered by declining employment. Indeed, jobs have dropped by about a third in accommodation and food services, as well than in arts and recreation services. These are industries where workers are generally young, with lower incomes, and are more likely to be renters, "said Owen.
Doubtful doubtful titles
While No Significant Prospects for Home Prices Have Been Released Yet, Headlines Announcing a 30% Drop Seem "Very Questionable," said Adrian Kelly, President of the Real Estate Institute of Australia (REIA).
"We can only look at what's going on in the market right now as well as in previous periods of high unemployment to provide insights into the likely outcomes," said Kelly.
Factors that would likely prevent any substantial price decline include the low level of announcements and increased demand from buyers.
A recent forecast by the Housing Industry Association indicates that construction of new homes will moderate over the next year. Kelly said it could mean that supply would not exceed demand.
"It is a simple economy that when supply declines and demand remains, prices go up. They certainly do not fall," he said.
The unemployment rate could, however, play a crucial role in determining price behavior. According to a recent forecast by the Commonwealth Bank of Australia, house prices are likely to fall 32% if unemployment continues to rise.
"History shows us that in the early 1990s, we experienced a period of sustained unemployment above 10%, but median house prices remained stable. I don't think so that that suggests a catastrophic outlook for house prices, "said Kelly.
