While the COVID-19 outbreak has been posing potential risks to Australia's economy, a silver lining is gradually showing as activity in the housing market starts to grow, according to the latest market analysis from CoreLogic.

Eliza Owen, head of residential research at Corelogic, said home sales and new listings rose in May, with buyer demand outweighing the volume of new housing stock.

Sales activity in May increased by 18.5%, following a sharp decline in April. The increase in sales coincides with the consistent improvement in consumer sentiment and the easing of COVID-19 restrictions.

In terms of housing stock, new listings rose by 22.4% over the 28 days to the end of May. Total listings, however, fell by 2.9%.

"This means that even as more new stock came onto the market, buyer activity offset the additional stock," Owen said.

Will prices continue to fall?

The CoreLogic Home Value Index declined in May, its first month-on-month drop since June last year. Overall, the median price of a home in the month decreased by 0.4%, with five of the eight state capitals reporting drops in prices.

One way to predict where prices are going is by looking at the ratio of sales to new listings, which could be used as a leading indicator of price movements. Owen said the ratio of sales to new listings increased from 1.1 to 1.3, the highest in the last 10 years.

"With the economy severely impacted by COVID-19, it is surprising to see such a strong rebound in transaction activity," she said.

The economic impacts of COVID-19, particularly the rise in unemployment and income losses could potentially lead to a rise in urgent or distressed sales and mortgage arrears.

Owen said that for each percentage-point rise in unemployment, there is a likelihood of an 80-basis point increase in the rate of mortgage arrears.

"If a large volume of distressed properties is listed simultaneously, this could put downward pressure on property values and make it harder to recoup equity from distressed sales," she said.

What could explain the increase in demand?

Owen said the strong rebound in transaction activity could be due to several factors. One is the improvement in consumer confidence. The ANZ Roy Morgan weekly consumer confidence index has been steadily rising over the past nine weeks.

"The easing of social distancing policies and low COVID-19 case numbers in Australia mean people may be feeling more confident about the future of the Australian economy, their personal finances, and property purchases," Owen said.

Furthermore, Owen said those whose finances are impacted by the COVID-19 are less likely to have mortgage debt. Some of the most affected sectors due to the outbreak are accommodation and food services, arts, tourism, and arts and recreation.

"We noted that this would disproportionately affect renters rather than owner-occupiers. Data from the ABS and HILDA suggests the share of households renting that are in food and accommodation services, and are in a more precarious financial situation, is around 40%," she said.

These factors could explain the relative stability observed in the housing market.

"With stability emerging in the property transaction space, it is evident that additional housing stimulus is less urgent among those that can already afford property, and is another case for addressing housing costs for low income earners," she said.