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What economists predict for property in 2nd half of 2020

Sep 09, 2020

There’s a huge amount of uncertainty in the world at the moment and one major question mark hangs over property prices in Australia. 

There’s no crystal ball to allow us to tell home sellers what’s going to happen, but there are a few big names in the industry making predictions. 

In most cases, people are in agreement that there will be a price drop in the property market, but how much it changes and how long it lasts is up for debate. 

SQM Research

SQM Research is one of the more reliable predictors of house price changes, owned by Louis Christopher outlined two possible scenarios. Louis’s insights present an interesting read, even in hindsight. 

Louis believes that the property market will be affected most by the buyer side and lack of international migration. SQM’s property price index is an excellent tool for tracking movements.

Best-case scenario

Most states are experiencing the best-case scenario with COVID-19 cases dropped and many restrictions lifted. As property auctions are one of the last things to be banned, the real estate industry is fortunate in that auction restrictions are one of the first to be lifted too. 

States and suburbs around Australia, experiencing this scenario are already on a trajectory that will see price increases by 4% to 7% higher at the end of 2020 than they were at the end of 2019. 

Worst-case scenario

However, SQM also has a worst-case scenario outlined ‒ a second wave of the virus, as we’ve seen hit Melbourne putting them into Level 4 Lockdown in August. This is likely to lead to the closure of many small businesses and the loss of a lot of jobs. It will affect, in particular, first-time home buyers. 

Banks would not be expected to force people to sell homes, and many will continue to offer pauses on mortgage repayments to help clients and stave off longer-term losses on the bank’s balance sheet. 

In this scenario, buyers would be looking at the worst housing market in recent memory, being worse even than during the global financial crisis in 2008 and credit crunch in 20018-19.

In the worst-case scenario, house price drops of 30% could be expected. 

More housing price predictions

Most predictions so far have been to expect a drop in house prices, but the real estate market has remained relatively resilient to date with the national average house price dropping by 0.6% ‒ even with the COVID-19 situation changing so rapidly. 

Global investment bank UBS had a more positive prediction than SQM’s 30%, saying that if the pandemic and its restrictions remain (or return as we are seeing), we could see house prices drop by around 20% but if they stabilise they could rise by 5% before the end of the year.

Michael Yardney’s Property Update site suggests that the biggest impact will be on the cheaper, less desirable homes. He expects a drop in value of around 5% for ‘investment grade’ properties, 10% for ‘average’ homes and worse for ‘less than perfect’ homes.

On the website, Samantha Landy talked about different scenarios early in the year and specifically about Melbourne’s Level 4 restrictions on real estate more recently. With a quick flattening of the corona curve, she believes that Melbourne and Sydney’s real estate markets could be back to normal by spring. 

In that article, Hotspotting founder Terry Ryder is quoted as being optimistic. He believes that following a 5% to 10% drop in prices, the market will right itself fairly quickly. He also highlights that the luxury property market in Australia is performing better than any other global economy throughout the pandemic.

Trent Wiltshire is an economist at Domain states that the Australian property market is much stronger than a few weeks ago but conditions are likely to remain subdued for the remainder of 2020. 

As you can see, there’s no real consensus. Historically, property prices have bounced after a crisis so we can only hope for the best while planning for a less-optimistic scenario.

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