There are still uncertainties about what will happen to house prices during and after the COVID-19 outbreak, but rents are likely to be more affected by adverse economic risks, according to a recent study by CoreLogic.
Eliza Owen, head of residential research at CoreLogic, said negative economic shocks do not necessarily lead to severe declines in property prices.
"Amid the onset of COVID-19, and the resultant economic shutdown, the operating environment for the housing market has completely changed. On aggregate, the Australian housing market is now on the cusp of another downturn," she said.
The housing market is gradually opening up again, with states reinstating open homes and onsite auctions. However, Owen believes demand is likely to see a continued decline due to the upside risks on unemployment and the slowdown in overseas migration.
Residential sales volume across the country declined by 40% in April, driven by the slump in consumer confidence. Housing values, on the other hand, have only shown a mild slowdown.
"By early May, capital city housing values fall by less than half a percent over a month, led by Melbourne, where values are down about half a percent," Owen said.
Owen believes that the housing downturn due to the COVID-19 outbreak is temporary in nature. This means that potential sellers might just simply hold off selling until the economy fully opens again.
"Property does not see the same declines as shares during a downturn, because it is used to live in and therefore not as speculated upon as shares. Additionally, it cannot be bought and sold as quickly as shares, meaning price movements are not as volatile," she said.
The economic risks of COVID-19, Owen said, could potentially be harsher on the rental market. Rent prices across Australia declined by 0.4% in April, with Hobart reporting the most significant cut at 1.1%.
"Rental markets have been particularly dampened by falls in employment. This is because jobs have fallen by about a third across accommodation and food services, and arts and recreation services. These are industries where workers are generally young, on less income, and are more likely to be renters," Owen said.
Questionable doomsday headlines
While any significant outlook on house prices has yet to unfold, the doomsday headlines pointing to a 30% decline appear "highly questionable", said Adrian Kelly, president of the Real Estate Institute of Australia (REIA).
"We can only look at what is happening in the marketplace at the moment as well as in previous times of high unemployment to provide pointers to likely outcomes," Kelly said.
Amongst the factors that would likely prevent any substantial decline in prices are the low level of listings and the increased buyer enquiries.
A recent forecast by the Housing Industry Association points to a moderation in new-home building over the coming year. Kelly said this could mean that supply will not exceed demand.
"It is simple economics that when supply decreases and demand remains, prices edge upwards. They certainly don't drop," he said.
The unemployment rate, however, could play a crucial role in determining how prices will behave. According to a recent forecast by the Commonwealth Bank of Australia, house prices will likely fall by as much as 32% if unemployment continues to rise.
"History shows us that in the early 1990s, we had a sustained period of unemployment above 10%, yet median house prices remained stable. I do not believe that this points to a catastrophic outlook for house prices," Kelly said.