Predictions on what the true impact of current economic events within Australia will have on the property market are still unfolding. Some within the industry are stating minimal effect whilst others are advising that the effect will have a major impact on pricing and supply/demand.
The industry as a whole has adopted technology to combat Government Stage 3 restrictions that allow both buyers and sellers to transact and inter react, these measures are to assist in allowing the market to flow. Whilst the overall stem of property may seem to be on the decline we need to remind ourselves the market prior was strong and on the rise, therefore is the decline due to such a rise prior and are we indeed more so on par with prior years of stability?
Dollars with Sense team and its panel of experts explore recent insights together and discuss some hot topics:
- possibility of recession
- house prices
- rental market
- support from RBA
- clearance rates
It is becoming more likely that the Australian economy will fall into its first recession since 1991. With a vast majority of the economy being shut down to tackle the spread of the virus, the fiscal output is being restricted. We all agree that this downturn does vary from prior recessions as truly right now our economy is being put into hiatus in order to save lives.
Along with this hiatus the second effect shall be a reduction in spending due to income contractions and employment reaching double their current rates which all such impact the economy greatly.
How long shall the downturn/ recession last? It comes down to the old age saying, “how long is a piece of string”. We are unsure how long the virus may take contain and how long certain restrictions will be in place for, add to this how long businesses that are in hiatus or had to close down during restrictions will take to re-start and to begin to trade safely again.
With the hiatus of the economy particularly around business closures and suspension of business which result in unemployment the likelihood of property prices reducing is inevitable.
The positive out of this we must note is due to Government Stimuli Packages, actions taken by the banks and RBA regarding rate reductions and deferral of payments, the avalanche of forced sales that normally occur in economic downturn will be limited.
Owners that may be in certain circumstances of reduced hours, job loss or having to change job circumstances due to home schooling, have the ability through the above mentioned means given by Government, RBA and Banks to work through repayment options of their mortgage and as such those that consider selling are likely to hold off until the economy and property market rebounds.
The on flow of this will see the reduction in prices be stagnated.
Rental prices continued to rise across the board if we looked at the March quarter however since then with Stage 3 restrictions we have seen the demand for rentals fall with the supply slightly increasing which will see a decline in rental prices being asked for in the coming months.
Supply of rental properties have increased primarily due to owners deciding to remain in the market and renting the property, most holiday homes and Air BnB’s have been taken of these markets and being put on the market as rental properties to tackle the restrictions around social distancing and tourism/ travel issues.
On the other hand, the demand for rental properties is slowly decreasing for much of the same reasons that supply is increasing. Students who came from foreign countries to study are no longer able to and are no longer in the rental market, single and younger Australian’s are relocating back to parents’ homes due to job loss and insecurity about the cost of living.
Based on these factors we shall see in the coming months a rise in the vacancy rates or time for a property to be rented out and the asking price of rent to fall slightly to counteract this.
1st Tuesday of each month the RBA meets and decision are made regarding the cash rate. 4th March saw the RBA decrease the cash rate to 0.5 basis points, the lowest it has been for sometime and had economists mind blown at such a low rate.
20th March due to what was occurring World-Wide the RBA meet for an unprecedented stimulus decision to assist households and businesses and further reduced the cash rate to 0.25 basis points with a commitment that it would not increase the cash rate until the economy had clearly recovered.
Along with this decision a $90 billion funding facility was created to encourage the banking sector to lend to small and medium businesses to assist with stimulus in these sectors and slow down the rate of closures.
Both of these decisions effectively slowed down the decline in the economy and allowed for the possibility of a positive trend to occur for households to reduce mortgage repayments and maintain the lending they had and allowed businesses that may have closed doors to remain open using extra lending possibilities.
With reduced clearance rates being mentioned in news reports and social media, does this mean properties are not selling?
Auction clearance rates is a timely measure for all those involved in the property market to acknowledge the state of the housing market. A high clearance rate normally means a sellers’ market is in play, strong competition from buyers at auctions normally drive the price before the hammer falls. A low clearance rate normally reveals a buyers’ market, prices are not being driven by competition as supply is exceeding demand.
Stage 3 restrictions by the Government temporarily banned public auctions and open house inspections. The industry within a matter of days had to go to virtual auctions or look at private treaties. These restrictions did see many opt to withdraw their homes from auctions.
Mid-March to April saw a lower than normal clearance rate but this was not due to homes being sold but majority going from auction to private treaty. The lower clearance rate in this case noting the unprecedented times we are in a false representation.
When looking at clearance rates during this time we need to look at withdrawal figures and the number that actually went to action, not just the number of auctions booked compared to the number that is sold.
Our newsletter this week is scratching the surface with these topics and we know most of our members would like to know more. James Lynch the co-host of Dollars with Sense TV Program will be running as part of our new Dollars with Sense webinar series Tuesday 5th May an in depth discussion on the Property Market, the good, the bad and the ugly, please use link sent to register.
In the meantime, if you would like to know any more about what options are out there for you given our current economy remember the team at Dollars with Sense and its panel of experts are here for YOU. Book your free no obligation consultation by using the links provided.