The Australian Capital Territory (ACT) managed to record a growth in dwelling values amid the COVID-19 pandemic, bucking the trend seen in some of the biggest housing markets in the country. What could be behind the ACT's stability?

The ACT's property values have grown by 1.3% since the end of March. Eliza Owen, head of residential research at CoreLogic, said while this could be viewed as an anomaly given the overall downtrend, it actually is just an impact of the record-low cash rate.

"RBA research has noted that reductions in the cash rate typically increase property values over time, because debt becomes cheaper and purchasing capacity increases," she said.

Also read: Price Decline Slowing Down?

Owen said the ACT’s housing market has likely been supported by favourable labour market conditions. In fact, figures from the Australian Bureau of Statistics show that the number of jobs across the financial and insurance industry in the ACT has increased 0.7% since the start of the pandemic.

"This market has likely been buoyed by the relative stability in employment across sectors where workers are on higher incomes and are more likely to be homeowners or prospective buyers," she said.

At the same time, ACT has seen the largest rate of decline amongst all states and territories in the labour market for accommodation and food services sector, which has been the hardest hit amid the COVID-19 outbreak.

"This industry is more likely to be comprised of renters, and rental values have fallen half a per cent across the ACT since March, with larger falls across the unit sector," Owen said.

Conversely, Melbourne has reported the most significant drop in property values since March at 3.5%. This decline could be explained by two factors. First, the city's property market is exposed to volatile growth rates, especially given its high level of gains during the recent upswing.

Furthermore, Owen said there has been a substantial demand shock to the Melbourne property market with the closure of international borders amid the outbreak. The city previously had the highest level of net overseas migration of the capital city markets.

The same can be said with Sydney, which received the second-highest volume of net interstate migrants over 2018-19. Property values in Sydney have declined by 1.7% since March.

One of the most immediate concerns on housing values will be the impact of the second lockdown in Victoria. Given the state's share in Australia's economy, the stage four lockdown has already dragged both consumer and business sentiment nationally.

"As federal government fiscal support moves from around $18bn per month to around $3bn from October, housing market conditions will be tested more broadly. This is when we are likely to see a rise in the number of households facing financial distress and a lift in urgent sales," she said.