House prices have continued to rise nationally in the face of the coronavirus-driven recession.
- House prices rose nationally in November, lifting by 0.8 per cent for the month and 3.1 per cent for the year
- While dwelling prices are up, values of apartments in capital cities are falling due to the lack of international students
- CoreLogic a##lysts expect house prices to further lift in 2021, labelling it a “seller’s market”
Property a##lysts no longer expect 10 to 20 per cent declines in house prices, and expect that if the virus remains under control in Australia prices will rise more by early next year.
After gains in October, CoreLogic’s national index recorded a second consecutive monthly rise in November, with dwelling values up 0.8 per cent over the month and 3.1 per cent over the year.
CoreLogic’s head of residential research Eliza Owen said this showed a “new recovery trend” following a 2.1 per cent drop in Australian home values between April and September.
“Sydney, Melbourne and Brisbane have risen by less than 1 per cent over the month, while all the smaller capital cities have risen by more than 1 per cent.”
Ms Owen said while “it does seem difficult to reconcile the biggest recession we’ve been through since the 1930s with an increase in house prices”, it was not uncommon for property values to rise during negative economic shocks.
Often when there are increases in unemployment the Reserve Bank steps in to lower interest rates, making it cheaper for people to buy homes.
The RBA is expected to leave the cash rate on hold at its record-low rate when it announces its decision later today.
Reserve Bank Governor Phillip Lowe has previously said the cash rate is unlikely to drop to zero, but that rates are likely to remain low for about three years.
Rental markets decline due to lack of international students
But not all the news is positive.
There has been a major deterioration in rental markets, especially in the inner cities of Sydney and Melbourne, where those markets rely heavily on international students and people in the food and accommodation sectors who have lost their jobs during the crisis.
While house values have driven gains in the combined capitals index over the past three months (rising 1.1 per cent), capital city unit values fell by 0.6 per cent over the same period.
Melbourne’s unit market is the exception. Unit values there recorded a smaller-than-expected decline throughout the COVID period so far, and showed a more substantial recovery trend over recent months.
“The real challenge at the moment is for investors,” Ms Owen said.
“Unit rents have fallen almost 8 per cent since the onset of the pandemic. And in Sydney they’ve fallen almost 7 per cent.”
An improvement in rental conditions depends largely on international borders reopening.
“We know about 80 per cent of people when they first come to Australia from overseas are renters — a lot of them being international students,” Ms Owen said.
House prices to rise by 2021
Given Corelogic is among the property a##lysts and economists who incorrectly predicted house prices would fall by 10 to 20 per cent, Ms Owen was reluctant to put a figure on future house price rises.
But she said house prices would rise through early next year off the back of low interest rates, higher levels of consumer sentiment, and government stimulus measures.
She said when people were more optimistic they were more likely to make a high-commitment decision such as buying a house.
“It will be tempered by things like whether there’s another spike in COVID-19 cases, how quickly we see the distribution of a vaccine, how trade relations play out in China, and how quickly we can get people back to work.
“All these things make the economic environment very uncertain.”
The RBA has been modelling 50 per cent theoretical house price falls, and has said that Australia’s economic recovery will be “unpredictable and uneven”.
A good time for sellers
There are, however, a number of data indicators pointing to a good time for sellers.
The stock on the housing market is about 20 per cent lower than where it was this time last year, and 24 per cent below the five-year average.
The number of settled sales has held reasonably firm since July, with rising sales activity outside Victoria offsetting the sharp drop in the state’s home sales caused by the recent lockdown period.
Nationally, CoreLogic’s settled sales estimates over the past three months were about 1 per cent higher than the same period last year, due to strong performance in regional areas.
Auction markets have strengthened, with clearance rates holding.
November clearance rates held at about 70 per cent, well above the decade average of 61 per cent.
Regional markets are showing stronger growth in housing values relative to the capital cities.
Regional home values were 1.4 per cent higher in November (compared with a 0.7 per cent rise in capital city values).
Regional Queensland has led the rise in values over the past three months, posting a 3.2 per cent lift, followed by regional NSW, where values are up 3.1 per cent.