Coronavirus is the biggest threat to the Australian economy since the Global Financial Crisis (GFC) and will more than likely have some impact on just about every person around the world in some way.
The aftermath of this current global pandemic is unknown at this stage, as we wait and watch, while taking as many precautions as we can, to limit what is being talked about as possibly the next modern-day recession.
Unfortunately, there has already been significant employment and wage losses, business disruptions and closures that are leading to financial pressure for many. In addition to this, there will be health impacts, which are particularly concerning for the elderly and other vulnerable high-risk people.
‘How will coronavirus impact the property market?’, is one of the most Googled questions since the outbreak.
The bottom line is, it will impact the property market and we will see property prices go down. How far down is unknown.
If we look at previous economy downturns such as the GFC, Australia was approximately four months behind the equity and bond market crash, which would result in our market being impacted around June, which is a month that is already known as a slow time of the year with less listings.
The positive is that interest rates are at an all-time low. The government is continuing to make the hard decisions (based on the rapid spread of the virus in countries overseas) to implement measures such as self-quarantining, limiting group gatherings and social distancing to reduce the spread; as well as, releasing their stimulus packages.
These measures are all helpful, however, the coronavirus pandemic has come as a sharp shock to the economy, which ultimately will lead to uncertainty and a lack of confidence in the property market for a period.
How long this downturn will continue, to some extent, will depend on how much business and consumer confidence falls. The media plays a very powerful role in the public’s perception and while being realistic it’s important that everyone comes together to support our economy in any small way we can.
So, is it all doom and gloom, or are there potential opportunities in the property market as a result of the coronavirus? The short answer is, yes we can see the potential of doom and gloom, but there are always opportunities, if you look for them and can afford them.
Many property owners today are in a far better position in comparison to the 1990’s recession and the GFC, as interest rates are at an all-time low, and over time, property owners have been able to acquire more than one property providing greater financial security.
For a lot of people with wealth tied up in the share market, their wealth has been diminished. So, capacity for many people to use that wealth to buy into the housing market has been reduced.
Buyers who are in very secure jobs, are in an improved position because the overall market is weaker.
Experts have been suggesting that if we can contain the virus and limit the necessity for long-term quarantine measures and the on-going impact on businesses, by taking short-term action, the drop-in property sales and prices will more than likely be temporary and the decline will be modest.
However, there may be a catch-up period of transactions over winter and spring where the people who wanted to buy and sell but didn’t (or couldn’t) due to the uncertainty of coronavirus. This rebound will feed into prices and sales, meaning the overall impact on the market this year will hopefully be minor.
While the current coronavirus pandemic is a first for many of us to experience, there are property cycle indicators, such as low interest rates that support a next step of property growth to follow.
However, unfortunately, if coronavirus shuts the economy down for an extended period, this will have an impact on the property market and construction sector with house prices and property construction potentially falling.
Due to the government’s updated regulations, open houses and auctions have been banned until further notice and there will likely be a continued reduction in the numbers of attendees for some time after they are allowed to operate again. However, there are technology advancements today and software that can assist in reducing disruptions to real estate businesses and the buying and selling process. At Aitken Real Estate, we continue to offer our one-on-one private inspections with increased safety precautions to help reduce the spread of coronavirus.
There will be an indirect impact on the property sector as people are likely to lose their jobs or have their hours cut.
This will lead to people not buying as they become fearful about taking out a mortgage with the uncertainty or concerns of being able to make the monthly repayments and some potential buyers won’t be able to get a home loan if they lose their job.
Banks may also come under funding pressures if global financial markets tighten, resulting in less lending.
For those with a mortgage, some people that lose their jobs will be forced to sell if they cannot meet their repayments if they lose their job or their income drops (although, a short-term positive statistic reveals that many people are currently ahead on their mortgage repayments).
We can be hopeful and optimistic that by 2021 we will see a strong rebound in the property cycle, but in the short-term, times are going to get tough for everyone.
We need to accept that the market has changed
For those who are currently looking at selling, we need to accept that the market has changed and may continue to change.
This may result in some sellers deferring the listing until a more certain time. But there will always be people who need to sell. So, why take a property off the market, giving all other property sellers the advantage of a short supply in uncertain times.
And if you are an investor, there are possibly hard decisions that are going to need to be made where everyone will need to plan and strategise possible outcomes. While investors will benefit from interest rate cuts, there is the impact of job loses and hours being cut that will impact on the tenant’s ability to pay the rent.
From state to state, each of the markets will vary slightly, but coronavirus is everywhere. Its impact on the property market will be everywhere too.
Things will eventually go back to normal, but it’s important right now to think ahead.
Find out what Aitken Real Estate is doing to help reduce the spread of COVID-19 here.
