It has been more than four months since the Corona Virus crisis wreaked havoc on the Australian economy, and while we are yet to see the full impact on the property market, cracks are appearing in its foundations.
But whether or not a property market collapse is on the cards depends on three key drivers – employment, population growth and consumer confidence – all of which have taken a hit amid the pandemic.
Protecting these three pillars is therefore vital in preventing a property market crash, but the ability to do that largely depends on how quickly Australia rebounds from the health crisis.
Here is a closer look at how COVID-19 is impacting the three pillars of the property market.
The three pillars of the property market
From a housing market perspective, employment is essential in terms of home buyers securing finance and home owners continuing to repay their mortgages.
While there are still currently more Australians in work than out of work, COVID-19 is having a heavy impact on the country’s labour market.
New figures from the Australian Bureau of Statistics revealed Australia’s unemployment rate jumped to 7.1% in May from 6.4% in April – its highest level since October 2001.
However, the unemployment rate would have jumped much higher without another big fall in people looking for work.
To be counted as unemployed by the ABS you must be actively looking and available for work – the latest figures showed the participation rate slumped to its lowest level since January 2001, at just 62.9%.
The JobKeeper wage subsidy is likely contributing to lower participation rates but with the scheme set to expire in three months’ time, unemployment could soon shift higher as people start looking for work again.
History tells us that following a recession it takes a long time for unemployment rates to return to pre-recessionary levels.
2. Population growth
Population growth is integral to the stability of the property market as it it the main driver of demand.
However, ABS demographic data from the December 2019 quarter, released last week, showed that the rate of population growth in Australia was already slowing before COVID-19 hit due to the dwindling rate of net overseas migration.
The population increased by 349,833 people in 2019 – its smallest annual increase since the 12 months to December 2015 and its slowest rate of growth since June 2006.
With international borders now closed due to COVID-19, population growth will likely be hampered even further, which will likely lead to reduced overall housing demand in the coming months.
The impact of this is likely to be more acute for the rental market and the new housing sector because most overseas arrivals don’t own property before arriving in Australia. If new arrivals do purchase a home before they gain citizenship, they usually have to purchase a new property.
The federal government’s new HomeBuilder scheme aims to offset reduced demand for new homes by migrants, but the incentive is only available until the end of this year and it’s still unclear when international borders will re-open.
Additionally, HomeBuilder does not address the lack of rental demand caused by closed international borders, which could lead to financial woes for landlords.
Purchasing a property is one of the biggest decisions most Australians will ever make, and therefore their confidence in the state of the economy plays a big part in their decision to take the plunge – or not.
It goes without saying that prospective home buyers are far more likely to transact on property if they feel confident about their overall financial position, which for many might now be in a precarious position as a result of the health crisis.
Consumer confidence fell dramatically as Australia entered COVID-19 lockdowns, but according to the ANZ-Roy Morgan Weekly Consumer Confidence Index, confidence has rebounded significantly since the introduction of the JobKeeper program and mortgage repayment holidays from the banks – now sitting slightly lower than it was before COVID-19 lockdowns began.
This marks a rapid recovery in consumer confidence, especially when you consider how quickly the virus was spreading as the country entered lockdowns.
If you need an updated opinion of the market and want to know what your home is worth right now, contact us on 4959 6577 to book a free appraisal today.