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House prices remain steady as transactions slow

Despite the nation-wide shutdown that has made life tough-going for most real estate agents, house prices have remained stable throughout April.

According to the latest data from CoreLogic, house prices nationwide ticked higher, up 0.3 per cent.

House prices in Sydney increased by 0.4 per cent, however, values did ease in Melbourne, with prices down -0.3 per cent over the course of the month.

Darwin was the big mover in April, with values surging 1.7 per cent in what was the biggest jump in values we’ve seen in many years. 

For the quarter, Sydney is still the strongest market in the country, with values up 3.2 per cent, with Darwin moving into second place with a surprise jump in values last month.

Head of Research at CoreLogic, Tim Lawless, feels Australia’s largest cities have a higher level of downside risk on the back of COVID-19.

“Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents,” Mr Lawless said. 

Hobart was the only major region to record a decline in home values over the month, down 0.1 per cent after what has been a charmed run over the past five years.

Mr Lawless said Hobart was likely to see falls because of its exposure to tourism.

“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 & food services, and arts & recreation services sectors.” 

Despite the weakening in housing market conditions, some cities have outperformed the six-month average pace of change. Perth (+0.2 per cent), Adelaide (+0.4 per cent) and Darwin (+1.7 per cent) outperformed their six month average pace of growth in April, demonstrating some resilience to weaker conditions.

Transactions and listings taper off

According to CoreLogic, estimates of settled sales plunged by around 40 per cent in April as buyers retreated to the sidelines and listing numbers dried up. 

“The most recent months are harder to provide an accurate estimate of sales activity due to the lag in receiving the full complement of sales records from each state government, as well as the impact from Easter. However, the substantial drop in sales activity is supported by a similar fall in the number of mortgage related valuation events across CoreLogic valuation platforms, which account for around 85 per cent of lender valuation instructions,” Mr Lawless said.

The number of new listings being added to the market which was tracking 35 per cent lower at the end of April relative to the same time a year ago and 43 per cent below the five year average. 

According to Mr Lawless, lower advertised supply levels may have a silver lining for housing values. 

“The reduction in advertised stock levels at a time of low demand is another factor that should help to insulate housing values from a more material downturn.”

Top-end of the market is slowing fastest
The most expensive housing markets are slowing the fastest. The CoreLogic stratified hedonic index shows the top quartile of the housing market has weakened the most substantially.

Quarterly gains across the top quartile reduced from 6.6 per cent late last year to 2.4 per cent over the three months ending April. 

On a monthly basis, the top quartile of capital city housing markets recorded a 0.1 per cent lift in home values compared with a 0.3 per cent rise across the broad ‘middle’ of the market and a 0.2 per cent increase across the lower quartile. 

Melbourne’s upper quartile market was the biggest drag on the aggregate measures, with dwelling values down 0.8 pe cent in April while the lower quartile and middle of the market continued to record a subtle rise in values over the month. 

The difference between value based strata across Sydney was not as extreme. However the top quartile, which was previously leading the pace of growth, had the lowest monthly rise at 0.3 per cent. 

The broad middle of Sydney’s housing market, recorded a stronger 0.6 per cent lift in value. The trends were more even across the value based strata of the smaller capitals, reflecting a more sustainable history of capital gains.

Premium housing markets have previously been more reactive to changes in the economic environment, and this trend is once again becoming apparent.

Rents are falling
Rental markets have shown a broad based weakening through April as the combined pressures of higher supply and lower demand flow through to lower rents. Rents were down over the month across seven of the eight capital cities, with the largest falls in Sydney (-0.7 per cent), Canberra (-0.7 per cent) and Melbourne (-0.5 per cent). 

Perth, where rental conditions have been tightening for several years, was the only capital city to see a lift in rents over the month (+0.1 per cent). 

Mr Lawless feels that rental markets on the East Coast were already weak prior to the shutdown.

“Rental markets were already soft leading into COVID-19, with annual growth of just 1.0per cent across the combined capital cities over the 12 months ending March. The latest data for April has dragged the annual change in capital city rents to just 0.4 per cent,” Mr Lawless said.

“Rental markets are likely to show much weaker conditions over the coming months due to higher supply levels. The conversion of short term rentals to permanent arrangements, and the large number of off-the-plan units that have recently completed or still under construction are adding to rental supply.

“On the demand side, occupancy rates are being negatively impacted by a stalling in overseas student numbers, as well as many domestic students studying remotely, and a stalling in international migration.

“Demand has been further impacted by the weak labour market conditions associated with sectors that are also synonymous with renters: casual employees, accommodation & food service workers and arts & recreation workers.”

Housing market to spring back to life
Mr Lawless feels that while price growth might have slowed, the market should spring back to life as restrictions continue to be eased back.

“The Australian version of this global health and economic crisis is only a month-and-a-half old, and it looks inevitable that there will be some downwards pressure on housing values over the coming months,” he said.

“The magnitude of housing value falls depends on a broad range of factors with most hinging on the timing and extent of social distancing policies being lifted. 

“The good news is that Australia has managed to flatten the spread of the virus more effectively and efficiently than expected and we are already seeing a subtle easing of social distancing policies in some states. An early return of economic activity should support a lift in consumer spirits which in turn should see housing market activity sparking back to life.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.