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COVID crisis triggers first fall in property prices

Residential dwelling values have declined for the first time in almost a year, but analysts are upbeat about the outlook.

Property research group CoreLogic has published its latest Hedonic Home Value index, reporting that national dwelling prices slipped 0.4 per cent in May – the first monthly decline since June 2019.

Five of Australia’s major capitals recorded month-on-month declines, triggering a cumulative fall of 0.5 per cent, while combined regional market values were stable.

Darwin recorded the sharpest decline in home values (1.6 per cent), followed by Melbourne (0.9 per cent), Perth (0.6 per cent), Sydney (0.4 per cent) and Brisbane (0.1 per cent).

This was offset by an increase in prices across Hobart (0.8 per cent), Canberra (0.5 per cent) and Adelaide (0.4 per cent).

However, CoreLogic head of research Tim Lawless is optimistic about the housing market outlook despite the overall fall in national property prices.  

Mr Lawless said weakness in the property market off the back of the COVID-19 crisis is less pronounced than initially expected.

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“Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction,” he said.

“With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

The analyst acknowledged that “downside risks remain” but claimed that the trajectory of the housing market is “looking healthier”.

“The virus curve has been flattened more quickly and effectively than even the best-case scenario forecasts, meaning some of the most restrictive policy settings have been either lifted or relaxed,” he said.

“Consumer spirits have lifted; vendors are starting to test the market, and buyer numbers have risen.”

Mr Lawless continued: “Housing values have been remarkably resilient to date. If history is anything to go by, housing values have generally weathered periods of extreme uncertainty quite well, and the trend to date looks very similar.

“Although home values haven’t materially fallen, buying and selling activity has been significantly impacted. In May, the sharp falls in both listing numbers and buyer activity are starting to reverse in line with improving consumer sentiment.”

However, the analyst noted that conditions could deteriorate once stimulus measures and mortgage repayment relief taper off and expire.

“[We] could see a rise in mortgage arrears and the potential for a lift in distressed sales,” Mr Lawless said.

“Despite the recent recovery in certain indicators from very low levels, it is hard to ignore job losses of almost 600,000 across the economy over April.”

He concluded: “With the cash rate at its effective lower bound, improved employment conditions will be a factor in steadying purchasing capacity for housing and the servicing of mortgage debt.”

ANZ Research is expecting property prices and construction activity to fall throughout 2020 and into 2021 before a “modest” recovery in the back end of 2021.

An average peak-to-trough decline of 10 per cent has been projected for home values across Australia’s capital cities.

[Related: PM fears impact of migration side on residential sector]

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