The effects of COVID-19 are starting to show in the economic and housing market figures across the country, with a clear slow-down occurring in the most recent figures and research. It was capped off by the treasurer, Josh Frydenberg, this week when he told reporters that a recession was inevitable after the Australian Bureau of Statistics released national accounts showing gross domestic product fell 0.3% in the quarter, and that the economy grew only by 1.4% over the past 12 months. This is the weakest performance seen since the global financial crisis.
So, what does this all mean for Brisbane house prices? It seems as though the initial Armageddon predictions of house prices falling nation-wide by 20-30% have all but been avoided through the steps that have been taken by the government. We have avoided the impact the virus has made on other major economies and health systems in the world, but the long-awaited lift in the Brisbane housing market that was finally showing through in late 2019 has been halted in its tracks.
As a state we seem to be better equipped to avoid the full impact on the housing market that is expected elsewhere through our strong economic fundamentals. Our higher exposure to international tourism is offset by our low dependency on foreign education and migration, which will have a much larger effect on Sydney and Melbourne. This will limit our downside risk during and post virus. This is reflected to date in our slightly milder turnover slump which is down 40% as a state compared to the 45% national average. A further possible explanation for the more optimistic results in Brisbane and QLD is that we have a lower reliance on auctions for sales activity, which with social distancing measures, has been difficult. Whereas private sales are relatively easier to conduct at this time.
Price growth has moderated rather than faltered, according to the Westpac Property Pulse report for May 2020. The 3% annual growth, which was experienced over the 3-months prior, had reduced to 2.6% with Brisbane prices remaining relatively firm. This performance has been better than the QLD Consumer Housing Sentiment index indicated. This index also indicates the pace of sales decline will moderate over the months to follow. Such a shift may be even stronger if prices remain steady, leading to a recovery of the very gloomy price expectations. Brisbane rental vacancy rates remain notably tight even with some deterioration in April with a rate of 2.8% recorded according to SQM Research.
This information points to Brisbane, and Queensland’s, outlook much more positive than other major markets with a lesser impact and quicker recovery. Ultimately the housing market is driven by owner-occupiers, with the major effect on the market being affordability and expected affordability. Whereas, confidence and sentiment drive investors' decisions. When considering affordability, key metrics to take into account are interest rates, current house prices, and incomes, and expected affordability captures the effect of labour market changes and price expectations. The main thing here, that is both a positive and a negative, is monetary policy prior to the virus, which has seen interest rates at record lows. Although they are low, helping affordability and lessening the impact of the recession, there is also little room for them to move to promote further purchases and stimulate the market as it has traditionally done. It also indicates the record low rates are here to stay for a time to come.
This combination of events provides a unique opportunity for people looking to enter the market, in Brisbane in particular. Times of uncertainty like these generally see people hold onto quality stock, making quality properties harder to come by. As a result, you’ll see high demand areas have relatively stable prices compared to less desirable pockets of housing and properties. This makes property selection more important than ever to minimise the risk of having negative growth in the first short period of ownership.
As is always the case, pandemic or not, property investment and purchases should be seen as long-term investments within your personal strategy. For prudent buyers, this could be a great opportunity to make purchases in fundamentally sound cities and towns. Sneaking into the market when interest rates are at all-time lows and likely to stay, while also capitalising on the short-term dip in the cycle.
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