House listings, sale volumes plummet amid COVID-19

According to CoreLogic, the decline was driven by a drop in consumer confidence amid significant job losses and economic uncertainty as Australia grappled with the impact of social distancing measures due to the coronavirus pandemic. Consumers remain hesitant to purchase property while they continue to face uncertainty over future income prospects.

The extent of the decline was fairly consistent across different parts of Australia and was driven by a decline in consumer confidence, according to the CoreLogic March 2020 Quarter Property Market & Economic Review, which reviewed how property has fared over the first quarter of the year and into the coronavirus pandemic.

CoreLogic analysed its sales volume figures against the Westpac-Melbourne Institute Consumer Sentiment Index, which showed the high correlation between declining consumer sentiment and reduced sales volumes.

Initial analysis shows that consumer sentiment did rise in May as some social distancing restrictions eased. For example, on-site auctions and property inspections recommenced in NSW and Victoria, and the number of new reported coronavirus cases decreased.

“But volumes are unlikely to see a full recovery until job and income growth strengthens,” the CoreLogic report stated.

“Indeed, there is a long road of challenges to economic demand, and this lift in consumer sentiment may be temporary.”

Furthermore, new housing demand would likely see a continued decline as borders remain closed to overseas migration.

The report further stated that it is not just hesitant buyers who are contributing to the low levels of transactions. Vendors are also hesitant to sell amid economic uncertainty.

According to CoreLogic listing data, the amount of stock available for sale is about 25 per cent lower than it was around this period last year.

In the 28 days to 12 May, fresh listings to the market plummeted by 38.2 per cent, compared with the same period last year, and total stock was down 26.8 per cent.

Eliza Owen, CoreLogic head of research Australia, said that while the lower number of listings indicated a difficult period for those developing and selling residential real estate, it also demonstrates that the market has not been inundated with distressed sales.

“In other words, not many people are selling, because not many people have to sell,” Ms Owen said in the report.

“It is likely that reprieve on mortgage repayments has protected people from distressed sales, at a time of rising unemployment, falling wages and falling numbers of hours worked. The real test for the stability of the housing market may come in September, when mortgage ‘holidays’ are currently set to expire.”

Similar observations were made by Ray White managing director Dan White, who recently told a webinar that listing numbers have halved across the market.

REA Group chief economist Nerida Conisbee told The Adviser’s In Focus video series that while buyer demand remains high for property, properties listed for sale has declined.

Mild slowdown in housing values

To date, housing values have slowed down only marginally, with capital city housing values falling by less than half a per cent over a month. Melbourne saw the steepest decline, where values are down about half a per cent. Sydney housing values declined by 0.1 per cent.

“One of the reasons values may be holding relatively steady, or only showing marginal declines, is because transaction activity is so low,” Ms Owen said.

CoreLogic recently explored property value performance during economic shocks, and found that vendors may have high expectations for their property value and could be holding off on selling until the economy returns to full-scale production once the pandemic passes.

APRA measures during COVID-19

The Australian Prudential Regulation Authority (APRA) has made various accommodations for banks during the COVID-19 pandemic, including allowing the capital ratios of banks to dip below the additional, high capital requirements set in 2017. This would give banks more room to lend in the coming months.

APRA made the allowance provided banks can still meet minimum capital requirements.   

Ms Owen said all measures introduced by APRA were important for allowing banks to offer relief to loan customers, including mortgage-holders. She said the current crisis could exacerbate one of the major downside risks to the Australian economy: mortgage debt.

Housing debt returned to a record high of 142.1 per cent of disposable household income at December 2019 after a small decline in the September quarter.

Ms Owen noted that there were no signs of distress visible yet in the housing market, and this was supported by a very low level of for-sale listings.

However, she warned that if reductions in income due to loss of employment mean this debt cannot be serviced, there may be an increase in cases of distressed sales, which would bring broader housing market values down further.

Furthermore, she stated it is “vital” that if the COVID-19 lockdown extends beyond the allotted six-month mortgage reprieve, banks may implement additional hardship measures aimed at reducing loan payments, or extend deferrals on mortgage repayments further.

“Otherwise, the period after the six-month loan deferrals will be a true test for the stability of the housing market,” Ms Owen said.

[Related: Mortgage deferral total surpasses $150bn]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.