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Property prices remain ‘resilient’ in May despite lockdown

Property prices across Australia’s capital cities have fallen for the first time since June last year.

Against the backdrop of wide-ranging shutdowns, the latest data from CoreLogic has shown the combined capital cities have fallen by 0.5 per cent in May.

The results around the country were mixed, with Adelaide, Hobart and Canberra all recording price increases, while it was some of the higher-end locations in Sydney and Melbourne that weighed on these markets.

The biggest price falls were in Darwin, where CoreLogic recorded a 1.6 per cent fall in dwelling values. Sydney and Melbourne fell 0.4 per cent and 0.9 per cent respectively in May.

The biggest decline in housing values is across the top quartile of the Melbourne and Sydney markets.

Melbourne’s most expensive quartile of the market recorded a 1.3 per cent drop in values over the month, compared with a 0.6 per cent fall across the broad ‘middle’ of the market and a 0.3 per cent fall across the most affordable quartile. 

Similarly, in Sydney, the top quartile was down 0.6 per cent while the lower quartile posted a 0.1 per cent increase in values.

The reduction in values through May comes as transaction activity in the market shows more positive signs. The CoreLogic estimate of sales activity bounced back by 18.5 per cent in May after a (revised) drop of 33 per cent in April.

Despite the falls across the country, Head of Research at CoreLogic, Tim Lawless, was positive given the unprecedented shutdown measures.

“Considering the weak economic conditions associated with the pandemic, a fall of less than half a per cent in housing values over the month shows the market has remained resilient to a material correction.

“With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

Mr Lawless also noted that even though house prices have weathered the storm, things could change when Government stimulus programs end.

“Eventually government stimulus will wind back and borrower repayment holidays will expire. In the absence of these policies, housing values could come under some additional downwards pressure if economic conditions haven’t picked up towards the end of the year.”

National home values remain 8.3 per cent higher than they were a year ago, with Perth (-2.1 per cent) and Darwin (-2.6 per cent) the only capital cities where values remain lower than at the same time last year.

Sales volumes still low
Housing market activity remains well below average, however, the rise in sales through May coincides with a consistent rise in consumer sentiment and eased social distancing policies through the month.

Historically there has been a strong correlation between consumer sentiment and housing market activity. 

Mr Lawless believes sales will follow sentiment higher as social distancing measure continue to be eased around the country.

“Measures of consumer sentiment have shown attitudes to be consistently improving since early April, after dropping sharply as the virus curve worsened and severe social distancing policies and border closures were implemented.

“With consumers feeling more confident, households are better equipped to make high commitment decisions such as buying or selling a home. A lift in housing market activity should also support broader economic activity, with housing turnover providing positive flow-on effects to other sectors including retail, construction and banking.” 

Listings gradually returning
Improved confidence is also flowing through to a rise in new listing numbers. The number of fresh property advertisements bottomed out at historic lows in early May, with the rolling 28-day count up 8.1 per cent compared with the end of April. 

Importantly, total stock levels remain extremely low. Although new listings numbers are trending higher, the total listing count, which includes new listings as well as re-listed properties, has continued to trend down, implying a healthy rate of absorption as buyers become more active as well.

Mr Lawless is focusing on how quickly vendors return to the market in the weeks ahead.

“The relationship between new listing numbers and total listings will be a key trend to watch; if total stock levels become elevated, this indicates that supply levels are outweighing demand. Currently, this does not look to be the case,” Mr Lawless noted.

Agents getting busy
Along with a rise in buyer and seller activity, CoreLogic is also reporting a rise in industry related activity. 

Real estate agent activity has shown a remarkable increase across the RP Data platform during May, with the number of reports generated across the platform rising by around 45 per cent since the end of April. 

“Prior to Easter, real estate agent activity was tracking 60 per cent lower than at the same time a year ago. By the end of May, agent activity was only 8 per cent below a year ago,” Mr Lawless explained.

“Real estate agent activity on the RP Data platform is highly correlated with the number of new property listings coming on the market with a two week lead, suggesting new listing numbers are set to rise further as we enter winter.” .

Rents were steady in May
The national rental index rose 0.2 per cent over the month, following a 0.4 per cent decline in April. The May rise was not enough to reverse a weakening trend, with every capital city except Perth recording a fall in rents over the past two months. 

Unit markets are looking weaker than house markets over the past two months, with unit rents falling 0.8 per cent since March across the combined capital cities while house rents were steady. Inner city apartment rents are looking precarious due to an imbalance between demand and supply.

Mr Lawless believes some areas are more vulnerable to rental decreases than others.

 “With a large amount of new inner city, high-rise apartment projects recently completed, and stalled migration and foreign student arrivals, inner city unit rents are likely to fall more substantially than other sectors of the market,” he said.

“The weakness in rental demand is likely to be compounded by significant job losses and income reductions across the hospitality, tourism and arts sectors, in which a larger portion of workers typically rent.

“The double whammy of higher supply and less rental demand, especially across unit markets, is likely to place further downwards pressure on yields. In Sydney gross rental yields are already around record lows and Melbourne isn’t far behind.”

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