What's going on in our property market in these uncertain times?
The last six weeks have been like no other I have experienced in my 45 years in property.
An unfolding tragedy, unevenly distributed. A media frenzy. An economic hibernation and our property markets throttled.
So how has COVID 19 affected our housing markets?
That's clearly important because property remains Australia's largest asset class by market value, meaning the performance of the property market directly and indirectly impacts every one of us.
But with things changing on an almost daily basis, the traditional end of month property data is out of date before it is reported.
So here is a selection of charts provided by CoreLogic and my commentary to help give you an up to date insight of our housing markets.
According to the CoreLogic Home Value Index, Australian housing values have not seen any evidence of a material decline in April, despite a sharp drop in market activity and a severe weakening in consumer sentiment.
However, the strong growth in property values that we saw at the beginning of the year has now disappeared and given the widespread fallout from Coronavirus, is likely we will see a slight fall in property values over the next couple of months.
- A Grade homes and "investment grade" properties are likely fall in value by around 5%, as we are still seeing strong demand form cashed up owner occupiers and strategic long-term investors for blue-chip property.
- B Grade (secondary) properties are likely to fall in value by 10 - 15%.
- And currently there is virtually no interest at all in C Grade properties.
How many properties are currently for sale?
To gain an insight on the balance between property market supply and demand, it is important to understand how many properties are available for sale, how long they have been sitting on the market, how much vendors need to discount their prices to affect a sale and how many new properties are being listed for sale.
Despite our lockdown, new properties are continuously being listed for sale in all states, but the number of new properties coming onto the market are considerably less than 12 months ago.
And remember 12 months ago, we were already in quiet times leading up to a federal election.
Around 4,000 properties were newly listed for sale in both Melbourne and Sydney last month, this was down around 18% from 12 months ago in Sydney and 27% from the number of new properties coming on the market in Melbourne a year ago.
There are about 18,000 properties for sale at present in Sydney, down 30% from 12 months ago.
And there are around 22,000 properties listed for sale in Melbourne, down around 24% from 12 months ago.
This means there is considerably less stock available for buyers to choose from.
While these figures are for properties currently listed for sale on the main online property portals, we have noticed an increase number of off market properties available for a "quiet sale."
The number of property transactions
The markets have not shut down, but they have clearly slowed down with transaction numbers significantly lower.
We are currently seeing around as many properties transactions in the month as were previously sold in around a week.
In the month of April:
- 1,085 houses and 569 apartments or units were sold in Melbourne.
- In Sydney 840 houses and 467 apartments sold.
- In Brisbane 681 houses and 188 apartments sold.
However, median prices achieved at these sales have been holding steady.
The time it takes to sell a property as well as the amount of discount a vendor needs to offer to transact are both good signs of the prevailing supply and demand ratio as well as buyer and seller confidence.
The following chart from Corelogic for properties transacted over the last 4 weeks shows that while properties are still transacting quickly in Melbourne and Sydney, with little discount required to find a buyer, conditions vary around the country.
“Time on market” (TOM) is simply the middle number of days between when a property is first listed for sale and the contract date.
The rate of vendor discounting is the median difference between the original listing price and the final selling price.
Auction clearance rates
Normally a large number of properties would be going to auction at this time of year, especially in Sydney and Melbourne.
However with social distancing in effect, auctions are now only conducted online, but this will soon change as the restrictions have recently been relaxed in New South Wales.
Last week, 590 capital city homes were scheduled for auction, with preliminary results returning a 59.6 per cent clearance rate.
A year ago there were 1,479 homes taken to auction and a 52.5 per cent clearance rate,.
But remember even then the market was relatively quiet as we were heading into a Federal election which brought with it a lot of anxiety and uncertainty around property.
Over the last couple of weeks, reported auction clearance rates were very low (in the 30s) because the withdrawal rate was high (properties scheduled for auction were withdrawn, mainly to be sold privately) but these are classically recorded as unsold.
With fewer scheduled auctions there are now fewer withdrawn properties meaning the auction clearance rate is starting to be a more realistic figure of what is actually happening in the market.
Mortgage activity events provides a timely lead indicator to housing finance commitments, which in turn are a leading indicator to property future property transactions.
The following chart shows that while the three month trend in mortgage activity is moving up, over the last month mortgage activity at all state has, not surprisingly decreased significantly.
And much of this activity has involved refinancing, most likely because of the current low interest rate environment, rather than new finance pre approvals which will lead to future property transactions.
The Bottom Line
It’s been a tumultuous few months for our economy and our property markets.
The latest data suggests that even though we are starting to see some impact from the COVID-19 on our housing markets due to a drop in consumer confidence and weaker economic conditions, this has not yet translated to lower house prices.
Source of all Charts: Corelogic
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.
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