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There are “serious challenges” ahead in housing market demand and the economy despite a gain in consumer sentiment and a bounce in auction clearance rates, according to CoreLogic.
Head of research Australia Eliza Owen said that while the housing market would benefit from the easing of restrictions on on-site auctions and property inspections across various states, it was not enough to compensate for the devastation on the economy and employment levels.
“It is not enough to make up for the 7.5 per cent of employed positions that have been lost, or the 8.2 per cent decline in wages paid, as reported by the ABS,” Ms Owen said.
“These significant changes to jobs and income will constrain housing demand in the year ahead.”
According to CoreLogic figures, the week ending 10 May delivered a final auction clearance rate of 59.9 per cent. This rose from a clearance rate of 47.5 per cent in the previous week, and a recent low of just 30.2 per cent only four weeks ago.
This was the highest clearance rate result since the week ending 15 March, before the strictest social distancing measures were implemented across Australia. However, the number of auctions held last week was almost 80 per cent lower.
The increase in the auction clearance rates came as on-site auctions resumed in NSW from 9 May, while auctions resume across most other states and territories this week, including Victoria.
Sydney had the highest clearance rate of the capital cities for the week ending 10 May, at 66.3 per cent. In Melbourne, the final clearance rate was 56.5 per cent for the week.
However, CoreLogic data indicated that auction clearance rates had been improving since the week ending 19 April, as the industry adapted to social distancing measures.
“Over the past few weeks, there was reduced downward pressure on the clearance rate because fewer auctions were scheduled, and less auctions were subsequently withdrawn,” Ms Owen said.
Impact of arrivals on housing
The lack of flow of people to Australia has also shocked housing demand, Ms Owen said.
The latest overseas arrivals data from the Australian Bureau of Statistics showed a 98.5 per cent drop in visitors to Australia over April, with April estimates suggesting 5,460 new arrivals to Australia.
This was off the back of a 12-month average of 761,912.
Combined with departures, there were 52,790 net departures from Australia over the month.
In his statement to Parliament House on the economic impacts of the coronavirus, federal treasurer Josh Frydenberg said nearly 40,000 passengers moved through Brisbane airport on Easter Sunday last year, compared to just 31 passengers this year.
“With slowed demand and a significant economic contraction playing out across Australia, we cannot confidently expect a turnaround in the housing market until certain economic indicators improve,” Ms Owen said.
“The cash rate is highly unlikely to be reduced any further. This means it will take an improvement in employment and incomes to see increased purchasing capacity, which would support growth in the housing market.”
CMA generation
CoreLogic observed that other real estate indicators have also been showing improvement along with auction clearance rates, which has led some to wonder whether there is a general improvement in the real estate market.
Since late March, CoreLogic has been reporting the weekly change in the number of reports generated by real estate agents across the RP Data platform, which provides a strong indicator of new listings.
The number of new CoreLogic Comparative Market Analysis (CMA) reports generated in the week ending 10 May was up 6.0 per cent over the week.
This compares to the week of 25 March, when the volume of CMAs generated fell by 38 per cent. Reports were down around 20 per cent of where they were this time last year, when the property market downswing was near the trough.
“These indicators of improved buyer and seller activity come as consumer sentiment has made significant gains,” Ms Owen said.
Consumer sentiment rebounds on government measures
The Westpac-Melbourne Institute Index of Consumer Sentiment rallied by 16.4 per cent to 88.1 in May, from the significantly weak 75.6 read in April.
Around family finances, the “finances vs a year ago” sub-index rose 5.5 per cent to 74.3, making a small recovery from last month’s 14.8 per cent fall to 70.4 per cent, an eight-year low.
The report indicated this could be a sign that the support from the government’s measures including JobKeeper and JobSeeker policies as well as temporary relief for mortgage and rental payments may be “providing more help at the margin”.
The survey indicated that one in five tenants have negotiated a temporary reduction in rental payments, with most reductions of around 25 per cent or less.
Housing sentiment
Housing sentiment also rebounded in May but price expectations remained considerably weak.
The report said the “time to buy a dwelling” index was back in positive territory after posting a 26.6 per cent drop in April. It jumped 31.8 per cent in May to 108.2.
While the rebound was across all states, Western Australia jumped 68 per cent, as Perth is set to resume the recent recovery after underperforming for many years.
Consumer expectations for house prices posted only a 4.6 per cent gain, only a slight recovery from April’s 50 per cent drop.
However, Victoria recorded a further deterioration in house price prospects, declining by 11.8 per cent.
“The Melbourne housing market looks vulnerable to the sudden slowdown in foreign student and migrant inflows and has already seen some early price slippage. The situation clearly bears watching closely,” the report said.
[Related: Deferrals, redraws to offset decline in volumes: RBA]
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