Virus expected to take moderate hit on house prices but spring will be telling

At the height of the coronavirus crisis, it was thought the value of Australian homes could drop by as much as 10%, but it appears the impact could be more moderate than first thought.

In mid-April, some experts said a 10% drop in the national house price index was on the cards, but in good news to home owners across the country, that looks to have been an over-estimation.

House prices are now predicted to drop by 5% instead of 10%. Source: Supplied

If the trend seen in May figures from property data firm CoreLogic continue, an annual fall of closer to 5% looks more likely.

Values tipped to drop by 5%

Professor Shaun Bond, the Frank Finn Professor of Finance at the University of Queensland Business School, said with the infection rate and lockdown easing sooner than anticipated, the country is “way ahead” of where most thought it would be at this time.

“Given the more positive outlook, I believe the potential fall of 10% that was widely discussed at the start of the crisis is less likely now,” he said.

Professor Bond said low interest rates and rapidly increasing consumer confidence look set to limit the damage of the crisis on the housing market.

“My expectations are for more modest falls in the headline house price measures over the next few months.”

New housing figures back this up with data from CoreLogic to the end of May showing that, nationally, prices fell by around 0.4%.

“If this trend continued, it would suggest an annual fall of close to 5%,” Professor Bond said.

“All of this is subject to a continued improvement in reported cases, as any setbacks could see a return to lockdown and a deterioration of the economic outlook.”

  • Track the estimated value of specific homes and learn about recent sales for similar properties with’s property tracking feature. 

A bigger impact on major markets

Early on, experts believed the effects of the crisis – growing unemployment, a drop in the flow of foreign capital and international migration, including foreign students, and hits to the tourism and hospitality sectors – would hurt values in major markets like Sydney and Melbourne most. And that’s been borne out.

“As predicted, Sydney and Melbourne fell by more than the other capitals, with the exception of Perth and Darwin,” Professor Bond said.

House prices in Sydney and Melbourne will take the biggest hit. Source: Supplied

Consistent with a view that those regions with better health outcomes would suffer less than more adversely impacted regions, the Canberra, Adelaide and Hobart markets have shown “remarkable resilience and appear to be holding up well”, he added.

“Outside of the capital cities, regions with exposure to the tourism sector are likely to continue to underperform while travel restrictions are in place.”

Property transactions to be hit more than house prices’s executive manager of economic research, Cameron Kusher, predicted the impact from COVID-19 on the property market would more likely be fewer transactions than large price falls – which he said “appears to be playing out”.

“The number of people searching for properties on was strong prior to the COVID-19 and is now stronger than it’s ever been,” Mr Kusher said.

“We are also seeing a high volume of people showing high intent to purchase in the short-term.

“But at the same time, the volume of new stock coming onto the market remains very low. It has trended higher since lockdowns ended but remains lower than last year and well down on longer-term typical new listing volumes.”

That being said, the power of record-low interest rates – and the likelihood of rates staying at historic lows for a number of years – should not be underestimated, Mr Kusher added.

“Historically, lower interest rates have led to increased demand for housing and, as consumer confidence continues to repair post-COVID-19, we would anticipate that the volume of people searching for properties for sale will continue to translate into actual transaction.

September looms as key period for recovery 

Looking ahead, Professor Bond said September looks to be key milestone in the market’s road to recovery.

“Many analysts are concerned about what happens when JobSeeker payments run out in September and also when banks become less willing to extend loan terms for impacted borrowers. The spring selling season will be a critical time for the market,” he said.

While low interest rates and financial support from the government is partially off-setting the economic fallout of the pandemic, mortgage distress remains a distinct possibility.

“Australia is almost certainly in recession and the deterioration in the labour market will lead to mortgage distress for some borrowers.

“This will be the case for home owners, but more particularly investors, who may suffer a double whammy if their own finances have been impacted by the crisis and they find themselves dealing with vacancies or reduced rent on their investment properties.”

Originally published as Virus expected to take moderate hit on house prices but spring will be telling