Australia's spring selling season might be unusually subdued this year, and it might be because of Victoria, according to a study by CoreLogic.

Victoria's Stage 4 restrictions will likely dampen the selling season, as potential buyers and sellers retreat from the market due to a moderation in consumer confidence, said Eliza Owen, head of residential research at CoreLogic.

Consumer confidence typically influences the level of buying and selling intentions in the market. Amid the ongoing COVID-19 pandemic, there was already an instance when sentiment dropped but bounced back quickly. This happened between March and April — both listings and sales turnout declined, only to recover quickly when restrictions started to ease.

"The low cost of debt and the strong recovery in consumer confidence created pent-up demand for property as Australia got ahead of the virus curve," Owen said.

Two-fold impact of COVID-19 restrictions

Owen said the COVID-19 restrictions has a two-fold impact on transaction activity. One of those impacts is the physical limitation of buying and selling property under social distancing rules. Another impact is the economic uncertainty.

"As consumption falls and unemployment spikes, vendors feel less confident selling their property and getting their desired price. This is further supported by the close movement exhibited between sales volumes and the consumer sentiment index," she said.

Owen said the sellers and buyers are less likely to participate in property transactions during negative economic shocks or periods of heightened uncertainty.

Most other capital cities are now reporting increases in new listings as consumer confidence improved with the containment of the outbreak in some major areas. However, new listings in Sydney and Melbourne are still in the red, with the latter significantly dragging the overall turnout.

In Sydney, new listings dropped marginally by 1.9% over the month to 23 August. A substantially higher decline was recorded in Melbourne, where new listings decreased by 54.9%.

Even if restrictions in Melbourne eases, Owen said the recovery in transaction activity is likely to be weaker.

"That is because employment is taking another hit, consumer sentiment is dampened by the reality of a second outbreak of the virus, and a reduction in fiscal support is only a month away. Ultimately, the second round of restrictions across Victoria is likely to create a weaker 'spring selling season' than in previous years," she said.