The CoreLogic Home Value Index has recorded a second consecutive month of falls, with the national index dropping by 0.7 per cent in June.
This follows a 0.4 per cent decline in May, which was the first monthly decline since 2019.
Each of the five largest capital cities recorded a fall in home values over the month, with Melbourne and Perth home values dropping by 1.1 per cent, while Sydney recorded a 0.8 per cent fall.
Brisbane and Adelaide recorded moderate falls of 0.4 per cent and 0.2 per cent, respectively.
On the other hand, the indices for Hobart, Canberra and Darwin each recorded a subtle rise in values over the month.
Despite the slump in home values in June, estimates of market activity showed further improvement. While market activity declined significantly in April, it surged by a revised 21.5 per cent surge through May, while CoreLogic’s estimate of home sales in June showed activity was up a further 29.5 per cent.
CoreLogic head of research Tim Lawless said the decline in home values has been mild so far, with capital city dwelling values dropping a cumulative 1.3 per cent over the past two months.
“A variety of factors have helped to protect home values from more significant declines, including persistently low advertised stock levels and significant government stimulus,” Mr Lawless said.
“Additionally, low interest rates and forbearance policies from lenders have helped to keep urgent sales off the market, providing further insulation to housing values.”
Low levels of advertised supply are also helping to insulate home values, with CoreLogic estimating the sales to listing ratio is tracking around 1.3. This means that for every additional new listing added to the market, there are 1.3 sales.
Another factor that is insulating home values is the improving economic environment as social distancing measure have been eased or removed earlier than expected.
Reserve Bank of Australia (RBA) governor Philip Lowe said the trajectory of the economy is somewhere between the best-case scenario and the central-case scenario. A milder recession and early return to growth should boost consumer confidence.
CoreLogic’s analysis said that the decline in home values of the last couple of months represent an interrupted upswing across most regions, reflected in high annual growth rates.
The 12-month change in home values have remained positive, with Sydney posting a rise of 13.3 per cent, while Melbourne’s home values grew by 10.2 per cent. Perth and Darwin posted annual declines – home values even in these capital cities were early into a recovery phase before the coronavirus pandemic struck, Mr Lawless said.
He warned, however, that while the decline in home values have been soft since April, uncertainty remains over the longer-term outlook.
“While it is encouraging to see lenders have recently hinted at an extension in their repayment leniency policies, the government stimulus will eventually taper and banks will require borrowers to repay their loans,” Mr Lawless said.
“The longer-term outlook for the housing market is largely dependent on how well the economy is tracking when these support measures are removed.”
Other housing market indicators
According to CoreLogic analysis, other housing market indicators have started to look more positive through June.
For example, real estate agent activity is now tracking higher than the same time last year. The number of comparative market analysis (CMA) reports generated across CoreLogic’s RP Data platform, which has more than three-quarters of Australian real estate agents as subscribers, was tracking 6 per cent higher than this time last year.
There is a high correlation between CMA activity and new listings activity, with a two-week lead.
The number of fresh real estate listings has been increasing since early May. While the rolling 28-day count of new listings remained lower than a year ago, it was 42 per cent higher relative to the recent low in early May.
“While new listings are ramping up, the total listing count has continued to trend lower, indicating a strong rate of absorption,” the CoreLogic analysis said.
Meanwhile, across auction markets, the combined capital city clearance rates averaged 59.9 per cent since mid-May, compared with the record low of 30.2 per cent through April as a result of the temporary ban on on-site auctions.
As a result, withdrawal rates peaked at 56.0 per cent, and more than 80 per cent of successful auction sales were negotiated prior to the auction rather than under the hammer.
Since late May, as auction bans lifted, withdrawal rates have reduced to around 10.0 per cent, with the large majority of auctions selling under the hammer rather than before or after the event.
Economic uncertainty remains
Mr Lawless warned that the downside risks were still significant despite early signs of improved economic activity and an increase in housing turnover.
“The recent rise of active virus cases in Victoria are a reminder that the potential risk of a second wave remains a stark reality. If we see the virus curve steepening rather than flattening, a return to restrictive policies is highly likely,” Mr Lawless said.
“Another key risk relates to the eventual removal of stimulus measures and borrower repayment holidays. Eventually, the economy and borrowers will need to abide by market forces. This is when we could see a rise in mortgage arrears and the potential for a lift in urgent or forced sales.”
AMP Capital chief economist Shane Oliver echoed the view that a premature wind-back of stimulus packages would add to the risk of steeper falls in property prices than his base case.
His base case currently remains for national house prices to fall by around 5 to 10 per cent into 2021, of which they have already fallen by 1.2 per cent.
“This assumes that the recent acceleration in new coronavirus cases in Victoria is controlled by targeted regional lockdowns and travel restrictions and a renewed emphasis on social distancing rather than a return to a generalised lockdown across Australia,” Mr Oliver said.
“However, if the resurgence in coronavirus cases in Victoria morphs into a broader “second wave” of cases across Australia necessitating a renewed economy-wide lockdown and a renewed downturn in the economy, then the likelihood of a 20 per cent plus decline in prices will escalate.”