Why Isn’t The Property Market Falling?
Despite COVID-19 causing widespread economic uncertainty, property prices have held up remarkably well, especially here in Sydney’s eastern suburbs.
We explore what’s behind the phenomenon and what’s likely to happen next.
The state of the property market
CoreLogic data reveals that Sydney prices actually rose 0.42% over April 2020. That puts them 14.3% higher than the same time last year. Meanwhile, Domain reported that the average house price across the entire eastern suburbs now stands at $2.54 million.
Even over May 2020, Sydney property prices fell just 0.4%, despite the widespread business closures and restrictions taking effect.
So far, it seems Sydney property has proven to be a good investment through COVID-19 and hasn’t suffered the same volatility as the share market. For instance, according to the historical index of the ASX200, if you had $1 million invested in the ASX on 21 February, you could expect to have had close to $650,000 by 24 March. Even after April’s market rallies, you’d still only expect to have around $800,000.
While it’s an inexact science, by way of contrast, if you owned a Sydney property worth $1 million in late February you would now expect it to be worth $1,015,000 based on CoreLogic’s data.
A lack of available property
Like the sharemarket, the property market is built on the laws of supply and demand. More stock and fewer buyers mean prices fall; less stock and more buyers mean they rise.
One of the key reasons that prices have held up is simply a lack of stock. People aren’t putting their properties on the market. CoreLogic also reported that, across Australia, the number of listings across fell 35% compared to the same time last year. They were also 43% lower than the five-year average.
Although there are fewer buyers in the market, this reduced stock means the supply and demand curves are intersecting at the same point as they were pre-COVID-19.
A ‘wait and see’ approach
The root cause of the lack of stock is simply that many people who would have put their property on the market this autumn have chosen not to. Many are opting to ride out the next little while to see if conditions improve. Others, such as upsizers, are asking themselves whether now is the right time to sell and upgrade given that it’s likely to mean taking on a larger mortgage.
Because people often only sell once they’ve bought, low stock levels can also become a self-perpetuating cycle. When there are few properties on the market, potential sellers tend to hold off because they don’t see any properties they would like to move into once they sell.
Finding your new dream home has always been the most powerful motivator to list your current property.
People not yet forced to sell
A property market plummets when people are forced to sell and accept whatever price they can get. We saw this in pockets during the GFC but we’re not seeing it in the property market right now. The Commonwealth government’s JobKeeper wage subsidy and bank policies on freezing mortgage repayments have helped many people meet their obligations so that urgent sales aren’t yet on the horizon.
In most recessions, it’s the sharemarket that falls first and hardest. That’s because investors usually find it much easier to sell any shares they hold compared to their property. You can sell shares at the press of a button. Even the best real estate agents usually take some time to sell a home.
Where a property investor is forced to sell, it’s often because they can’t keep up their mortgage repayments. Again, this isn’t yet a factor given the potential to apply for a mortgage freeze from the banks.
Will current conditions last?
The reality is that no one knows exactly what will happen to the property market. Most economists are forecasting a correction of some kind. However, there is no consensus on how severe – or mild – that will be. A lot depends on how quickly the economy gets back to some level of normalcy and also how long the government and banks are prepared to support borrowers who can’t meet their mortgage repayments.
That said, the Australian property has not generally experienced the same kind of slumps slump share markets are prone to. Even the worst falls in recent Australian history, the recessions of the early 1980s and 1990s, saw property prices come down just 8.7% and 6.2% respectively.
It pays to remember that the property market isn’t homogenous. There is no single national property market and not even a single market across Sydney. Even within the Eastern suburbs, there are markets within markets, with different factors driving each of them. What influences a prestige downsizer to pay more for a high-end apartment is very different from what makes a first-home buyer enter the market for the first time.
It also pays to remember that the eastern suburbs has always been one of Australia’s most desirable and stable property markets. Property here has always been in demand.
When times are tough, it’s almost always the blue-chip assets that tend to hold their value best.
If you’d like to know more about buying or selling in Sydney’s east, please get in touch.