As COVID-19 is wreaking havoc on global health and safety, accompanied by international economic chaos, the world as we know it will never be the same.
But what are the effects of this pandemic on Australian housing values and what does that mean for the real estate industry?
From our everyday life to business globally, we are already starting to see the terms pre-COVID-19 and post-COVID-19 being used in various contexts. The real estate industry is no exception.
“From this, we may see a new metric introduced: pre-COVID-19 and post-COVID-19 valuations, similar to the GFC [Global Financial Crisis]” says Shaneal Sharma, the founder and CEO of Transactor. “It is inevitable, because it is another data point we will now have as information – we have a crisis that is now changing data.”
April being the first full month with COVID-19 restrictions in place, we are only just now starting to gain access to data that can give us factual information about where we stand at the moment compared to the pre-COVID-19 situation.
For the growth of national housing values, the beginning of 2020 looked positive.
According to CoreLogic Hedonic Home Value Index January 2020 results, the national home value index went up by 0.9% in January, pushing the annual growth rate to 4.1%. Last time Australia saw a 12-month period with a pace of growth this fast, was December 2017.
But in March, everything started to change.
Restrictions regarding public gatherings and social distancing were promptly introduced, fundamentally altering the way the real estate industry operates. Bans for open house inspections and on-site auctions got both vendors and buyers feeling perplexed.
“We’ve seen the number of real estate agents generating CMA [Comparative Market Analysis] reports down about 60 %, suggesting that agents have become much less active, which implies that there are fewer new listings being prepared for the market,” says Tim Lawless, the Head of Research at CoreLogic.
What may have slightly softened the blow, are recent monetary policy decisions from RBA to cut the cash rate to a record low 0.25 percent, along with some short-term reliefs, such as banks allowing the freezing of mortgage repayments for six months.
Arguably, the most dramatic impacts are yet to be seen.
Will history repeat itself?
Data around previous economic crises indicates that housing values have been more insulated from financial shocks than what the general transaction activity has.
The housing values seem to be increasing fairly quickly after the shock, whereas transaction activity experiences a rather sharp decline.
“We are going to see a big hit in transaction activity, probably more than half of what we normally see at this time of the year,” says Mr Lawless. “But our view also is, it will probably be quite short and sharp in terms of disruption.”
Making purchase decisions
Understandably, making big decisions during a time of uncertainty is hard, and this is also showing in the property market. “Consumers are much less able to make high commitment decisions, which, of course, is what buying or selling a home is all about,” says Mr Lawless.
But crisis or not, there are always people who want to buy or sell for various different reasons. In fact, many agents have recently seen some very reasonable results.
“It appears that we are in a marketplace that is far more qualitative than quantitative,” says Tom Panos, a real estate coach and a trainer.
Sam Patterson, an agent and the director of Duke Realty, agrees with Mr Panos. “The inspections are now done by serious buyers, who are a lot more qualified,” he says.
In some cases, however, the prices actually have dropped lower than expected. There has, for example, been listings of 3-bedroom houses on more than 600sqm of land, for under $500 000.
Even after making the decision to purchase, getting a home loan may become an issue.
“On one hand, we have historical low interest rates, and on the other hand, it can arguably be difficult to be approved for that home loan, especially with how conservative the banks are currently,” says Mr Sharma.
“There has also been a big lag with the banks in coming back with approvals because of the backlog of deferrals, and dealing with the impact of COVID-19”
And as people are losing their jobs, they will no longer be approved for the loans they were before the crisis hit.
Home owners in financial stress
Due to the change of circumstances, many people who have paid top dollar to obtain a certain lifestyle and are now making their repayments, might be in the face of financial hardship.
“Currently there are real situations, whereby home owners have purchased real estate in blue chip areas within the last four years and currently have either been stood down, lost their jobs, or unable to operate their businesses due to COVID-19, and are not able to sustain both their income and their home loans” explains Mr Sharma.
There are also people that have had home loans for decades, never missing a payment and only now are they failing to pay as they are going through financial difficulty.
Financial stress can also cause vendors to make hasty decisions, and accept offers they normally wouldn’t.
“Based on the urgency of the homeowner, it may have an impact on slight price drops, if those homeowners cannot meet minimum financial commitments on keeping their properties,” says Mr Sharma.
“A panic sale is an opportunity for a cashed-up buyer.”
Towards the new normal
Currently, to further support those impacted by COVID-19, the bank has issued a 6-month deferral on loans.
On top of your mortgage, however, you still have all the other bills to pay, so this is just one piece of the puzzle. There is no arguing that deferring your home loan payments might help you short-term, but the real question is this: