Even our Property Optimists have underestimated the resilience of Australia’s property market in the face of the COVID-19 crisis.
Initial forecasts of up to 30% falls in house values were defended by pro-property analysts but after corrections of around 10%-15% were considered almost inevitable.
After five months of declines, Australian house prices have posted growth of 0.4% in October, according to CoreLogic.
Each capital city recorded an increase in home values, except Melbourne, which saw a 0.2% decline over the month.
Despite the decline, the downward trend in the Victorian capital has been easing since mid-September, with the 0.2% decline the smallest month on month drop since the COVID-induced downturn.
With private inspections now permitted, new property listings have surged and clearance rates have listed, with CoreLogic predicting house prices in Melbourne will soon recover.
CoreLogic’s Head of Research Tim Lawless said the October results show a stark contrast between house and unit market performance.
“The rise in capital city housing values over the month was entirely attributable to a 0.4% lift in house values which offset the 0.2% fall in unit values,” Mr Lawless said.
“Through the COVID period so far, unit values have actually shown a smaller decline in values than houses, but this is likely to change.”
“Almost two-thirds of Australian units are rented, and rental conditions have weakened, especially in the key inner-city precincts of Melbourne and Sydney.”
Change in dwelling values as at October 31, 2020
Mr Lawless said unit markets were suffering as a result of little to no overseas migration, low levels of investment, and high stock levels.
Regional markets continued to outperform the capitals, even withstanding much of the COVID-related downturn.
In the seven months since March, regional dwelling values are up 1.7%, while values across the capitals have fallen by 2.3%.
“The newfound popularity of working from home is only one factor helping to support regional home prices,” Mr Lawless said.
“More affordable price points, lower densities and lifestyle factors, are also under-pinning the relative strength across many regional areas of the country.”
Mr Lawless added the lift in home values coincided with a range of other improved indicators in recent months.
“Consumer confidence has consistently improved since the virus curve has once again flattened and Australians respond positively to measures announced in the federal budget,” he said.
“In October we saw an 11.9% surge in the Westpac-Melbourne Institute consumer sentiment index, rising clearance rates and an increase in valuation for purchase orders.
“Alongside this we are seeing persistently low advertised stock, which has supported price growth.“
Despite a surge in new listing numbers, total advertised stock remains close to record lows, with new listings increasing by 25.2% but total stock levels growing by less than 1%.
House rents and unit rents diverge
The pandemic period has seen a substantial divergence between house and unit rents.
Between March and October, capital city unit rents were down a cumulative 4.8%, while houses recorded a 0.4% rise in rents.
This divergence continued through October with the monthly data showing a 0.7% drop in capital city unit rents while house rents are up 0.5%.
The difference between house and unit rental performance was most significant in Melbourne and Sydney where, since March, unit rents are down 6.6% and 5.8% respectively while house rents have seen a more mild reduction of around 1%.
Mr Lawless said the divergence could be attributed to a combination of supply and demand factors.
“Both cities have a multiyear history of significant supply additions to the high-rise unit sector where the large majority of properties are owned by investors,” he said.
“From a demand side, the evaporation of overseas migrants, including foreign students, has led to a sudden and material drop in the number of renters requiring accommodation.
“Additionally, weaker labour market conditions across industries where workers are more likely to rent than in any other sector have further impacted rental demand.”