Housing Prices Post the ‘Great Virus Crisis’
If this global pandemic has taught us anything, it’s that the ability to understand data is a very valuable one! While we are being given data from many different sources, the skill of quantifying this data has been paramount, particularly amongst the policy makers around the globe who utilise these data sets to define safety measures.
During this unprecedented time, we are one again hearing the familiar debate brewing amongst Australians; there are a pack of ‘hangry’ housing bears beginning to circle. All of these ‘hangry’ bears are claiming that housing prices in Australia will fall, and by their largest margin on record. The four big banks believe prices will fall by 10 per cent, UBS foresees a 10 - 20 per cent retrenchment and Morgan Stanley claims that prices will decrease by up to 15 percent. Well respected housing analyst, Louis Christopher has even suggested that there is a possibility of a 30 per cent drawdown (Australian Financial Review, May 2020). Then, we look to the extremely pessimistic (or optimistic? You decide…) bears, who are foreseeing a housing price depression.
However, you cannot deny data. The data doesn’t lie, and these ‘hangry’ housing bears are choosing to turn a blind eye to what is really going on! Clearly journalist rhetoric at is best…
The Australian Financial Review is foreseeing a housing price flatline over the next few months, with the risk of a modest price slump of 5 per cent. If we continue to look further into the months to follow, the 2019-20 boom will come back with full force, with prices making up for their COVID-slumps and shooting far past them. Prices are set to climb by up to 10 - 20 per cent, on the back of the 75-150 basis point reduction in mortgage rates over the past year.
This will result in a huge boost in purchasing power, pushing down interest repayments to an incredible low, as in, the lowest share of a buyer’s disposable income in decades!
But what about those ‘hangry’ bears? Haven’t they read the data?
Yes, the data does support our opposing bear’s case, as we watched the housing prices steadily depreciate from February through to April, and now the flatlining of housing prices this May. This is particularly evident in Brisbane and Sydney, where prices have remained the picture of stability (with only slight slumping seen in Melbourne). Auction results also appear to be on the mend as the restrictions continue to ease.
The four to five per cent gross rental yields available on Australian investment properties seem to be the shining star amidst the COVID-19 pandemic, these are attractive figures as the search for returns intensifies. Particularly after the Reserve Bank of Australia made its decision to floor the cash rate to a 0.25 per cent, this past March. The AFR forecasts that the continued flattening of Australia’s curve in conjunction with the Prime Minister’s decision to pivot away from the previously predicted 6 month hibernation, will allow housing prices to increase once again.
Whilst a pandemic can bring about uncertainty in many markets, it also brings out fear mongering journalists who thrive off the back of tentative times. Being well-versed in these times is what will help our industry and economy bounce back. Read between the lines and cut through the rhetoric. Always look for real data, and follow the trends that paint a factual picture.
At the end of the day figures don’t lie, and it will be the reassurance in actual versus forecast data that will help kick start the property market, and bring about much needed consumer and business confidence to pick our economy back up.