Martin Farrer / Friday, March 20, 2020
Economists say house prices could fall as much as 20% if the recession lasts longer than six months
The Reserve Bank’s dramatic $90bn boost for the financial system will not be enough to save the housing market from a possible crash as Australia heads into a coronavirus-driven recession.
Along with billions in emergency lending for small businesses, the RBA cut the cash rate to zero on Thursday in what would normally be a signal for buyers and investors to pile into property.
But with transactions likely to dry up amid a creeping nationwide lockdown, the long boom in the housing market faces its biggest test for more than a decade.
Some economists, such as AMP’s Shane Oliver, estimate that prices could fall as much as 20% if the recession lasts more than six months. A more limited downturn in which prices drop 10% is more likely, he thinks.
CoreLogic, the research firm that compiles data on the market, said on Thursday that the “extreme uncertainty and economic fragility” ushered in by the coronavirus pandemic made it difficult to expect any response to the record low borrowing costs from buyers and sellers.
Consumer confidence has been weak and existing economic headwinds, including high household debt, make the property market “particularly susceptible” to a fall in demand.
“As the coronavirus pandemic broadens, and the probability of an Australian recession increases, consumer confidence is trending lower from an already weak position,” CoreLogic said. “This will likely weigh on high-commitment consumer spending decisions, such as buying or selling a home.”
Confidence in the market has remained robust until now. Auction clearances were still relatively high last weekend – ending up at 65.6% in Melbourne and 68.1% in Sydney.
But market experts have begun to report a rush to sell amid the mounting crisis. Tom Panos, a Sydney auctioneer, said he had noticed more vendors rushing to “cash out”.
His view was supported by buyer’s agent Pete Wargent, who said he had noticed investors with multiple properties were looking to sell. But he thinks transactions are about to “drop off a cliff” in the lockdown.
“The reality is that monetary stimulus won’t help the housing market. Confidence in the property market is now very low, as is consumer confidence generally, and until that recovers we won’t see many transactions.