Signs of relative stability as we adapt to a new normal

Posted by Luke Graham

Hibernation, a phrase adopted by the Morrison government to communicate the temporary nature of the COVID-19 fallout, is showing more signs of arrival in the property market. Since property data is typically delayed by weeks and even months, the country is not yet officially aware of how much sales volumes have decreased. What we do know, however, is that the number of comparative market analyses being generated on the CoreLogic platform is reducing. This suggests that listing activity among real estate agents is falling, an anticipated impact of COVID-19 that we discussed in last week’s research blog.

In addition, Australia’s preeminent listing platform, realestate.com.au (REA), experienced a dip in share price corresponding with the wider ASX correction. REA’s share price had been on a stable incline during the market revival of late-2019, with positive expectations for the coming years until COVID-19 interrupted their growing momentum. In mid-June, data on capital city median prices and sales volumes from the first quarter of 2020 will be formally released by the Australian Bureau of Statistics. Since lockdowns took effect in the final days of this period, the greater impact will be seen during the current quarter. We should expect to see that data in mid-September but will have hints from other data sources in the meantime.

A positive for REA and the broader share market is that the past couple of weeks have been much more promising. The freefall of late-February to late-March has been followed by a recovery of almost 1,000 points, returning the ASX200 to an approximate level last seen in late-2018. Such fluctuations are further evidence of the speculative and emotionally charged nature of listed share prices during this pandemic. During the ASX fall we saw the Australian dollar weaken against key currencies such as the US Dollar and British Pound Sterling, but has since rebounded also. As a result of this better news, the Reserve Bank of Australia (RBA) kept the 0.25% cash rate on hold during their April 2020 meeting.

Internationally, we are seeing countries much more heavily impacted by COVID-19 than ourselves. Some media outlets have attributed this to factors such as population density and our relative geographic isolation. Growth rates for both infection and death have stabilised in some areas. This has redirected their conversations to the topic of strategies to eventually lift restrictions. In the meantime, some of the largest stimulus packages around the world have been released, aimed at facilitating employment, home ownership and economic activity. In the short-term, this will certainly cushion the blow on real estate markets and other asset classes. Particularly since negative predictions were largely based on varying scenarios of unemployment.

As has been discussed over previous weeks, now would still not be an ideal time to dispose of a real estate asset. This does not just apply to Australia, but most international markets too. Nevertheless, those who are moving ahead with their sale are unwittingly offering great opportunities to investors currently active in the market. These sales won’t be distressed in the typical sense, as banks have been equipped to offer loan deferrals from three to six months for those who find themselves in a distressed position during the COVID-19 fallout.

Posted by Luke Graham, on 14th Apr 2020