Australia's most expensive housing markets have experienced the biggest decline in prices since the onset of the COVID-19 outbreak, according to a recent market analysis by CoreLogic.
Eliza Owen, head of residential research at CoreLogic, said the response to contain the COVID-19 outbreak has resulted in unintended consequences in the housing market, which, at the start of the year, has been showing signs of an uptrend.
The CoreLogic Home Value Index posted a 0.4% decline in May. The performance, however, varied by region.
"As per historic cycles, the most expensive parts of Sydney and Melbourne seem to be leading the current downswing. The more expensive parts of the Sydney and Melbourne dwelling markets have higher levels of volatility, and are at times a 'first mover' when it comes to the direction of price change," Owen said.
Melbourne's inner-city and eastern suburbs have recorded the largest decline across the metropolitan region. In the New South Wales capital, Northern Beaches, North Sydney, and Inner West recorded drops in values over the past two months.
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Owen said continued declines are likely to persist in inner-city markets that rely on international migration for housing demand.
"However, as the wider economic downturn drags on housing demand, mild price declines are likely to spread, resulting in a more broad-based downturn in the next 12 months," she said.
Citing a study from the Reserve Bank of Australia, Owen said expensive markets are the most reactive and volatile in response to the changes in cash rate.
"The performance of property markets amid COVID-19 suggest the high end of the market may also be more responsive to negative economic shocks," she said.
What's surprising with the CoreLogic data, however, is that one of the regions that recorded the most significant decline in values was not from Sydney or Melbourne but from Perth.
Mandurah, a city on the southwest coast of Western Australia, registered a 2.2% value drop over the period from 31 March to 31 May. Current values in the region were 38% below their peak in 20016.
This decline was off the back of a longer-term downward trend in the region. In fact, Owens said Mandurah have not been particularly susceptible to a demand shock from a decline in overseas migration. This suggests that demand conditions were already fragile across the region pre-COVID-19.
If there was a region in Perth more exposed to the weakness in international migration, it would be the South East region. Values in this region declined by 1.2% between March and May.
"International border closures in response to COVID-19 may have created a significant demand shock which had interrupted a recovery in the Perth - South East region. Prior to this, dwelling values in the area had seen four consecutive months of growth between December 2019 and March 2020," Owen said.
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