The Australian property market outlook for the rest of 2020

author-avatar By on June 26, 2020
The Australian property market outlook for the rest of 2020

Photo by Linda Xu on Unsplash

New analysis has painted a more positive outlook for the property market in the coming months.

Domain analysis found while there was reason for optimism, conditions were likely to remain subdued in most parts of the country in the latter half of the year.

Despite fears of 20-30% property price drops, the property market has stabilised in recent months, and most indicators point to a rebounding but sluggish market. 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayment
 
Budget Home Loan OO P&I
2.68% 2.74% $1,618 More details
2.89% 2.89% $1,663 More details
2.39% 2.40% $1,558 More details
Economy Variable P&I 70%
2.69% 2.86% $1,620 More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 08 July 2020. View disclaimer.

Domain economist Trent Wilshere said a number of factors had led to the more optimistic outlook.

"Business and consumer confidence have rebounded, employment and job advertisements have started to recover and business output is rebounding," Mr Wilshere said.

"The OECD (Organisation for Economic Co-operation and Development) expects Australia’s economy to perform better than most other countries in the year ahead.

"But even with the better than expected recovery, economic conditions will remain subdued, with the unemployment rate and underemployment likely to remain elevated until at least 2022."

Mr Wilshere said clearance rates and auction numbers were returning to normal levels, buyer confidence was rebounding and rental markets were stabilising. 

Read: Which regions have seen the biggest property price falls since COVID-19 hit?

How the property market will look at the end of the year

Mr Wilshere said the most likely outlook for the property market was for prices to fall modestly in some areas and be broadly steady in others.

"But given the unprecedented nature of the COVID-19 recession, the outlook for the property market for 2020 is highly uncertain," he said.

"The key factor supporting prices so far is that few people have been forced to sell their homes due to losing their jobs or having their incomes cut.

"This has been enabled by the government’s financial support packages assisting households whose income has fallen, in combination with banks allowing people in financial difficulties to defer mortgage repayments."

Mr Wilshere said Perth, Adelaide, and Canberra were the markets most likely to rebound fastest.

"Prices are likely to grow at a modest pace and sales activity should pick-up.

"There are few or no COVID-19 cases in these cities, meaning the local economies should be able to operate fairly normally."

Inner-city Melbourne and Sydney look to be most at risk of price falls, due to large proportion of renters, significant job losses and little to no immigration.

"Inner Brisbane, inner Perth, the Gold Coast and Sydney’s eastern suburbs also look more vulnerable to price falls due to job losses and a higher proportion of investment properties, but not to the same extent as Sydney and Melbourne," Mr Wilshere said.

The biggest risks to recovery

Mr Wilshere said a widespread second wave of COVID-19 infections would derail Australia’s economic recovery and likely result in widespread property price falls and a slowdown in transactions.

"Governments will also be less likely to offer the substantial financial support that was offered in the initial coronavirus outbreak and banks will also be less likely to offer mortgage deferrals to as many clients," he said.

"Many businesses that survived the initial outbreak and shutdown may shut if there is a second wave, resulting in a spike in unemployment and a drop-off in consumer confidence.

"So a second wave will likely lead to an increase in forced sales, which will weigh on prices."

He said the scheduled end of JobKeeper and JobSeeker, as well as mortgage deferrals could create a fiscal or economic cliff. 

"The fiscal cliff will severely harm the economic recovery that is underway. Due to this risk, the government should continue to provide support to the most affected households and businesses beyond September, despite recent comments about cutting back spending."

There is a chance of a rapid rebound later this year

Mr Wilshere said while the downside risks were larger, there was still the potential for a more rapid market rebound.

"Interest rates, a key driver of property prices, are at record low levels and the RBA has stated that rates will remain very low for years.

"If COVID-19 outbreaks are contained and the economy recovers, then investors and owner-occupiers will be more willing to borrow and take advantage of greater borrowing capacity.

"First-home buyers will also be keen to take advantage of the government incentives such as the First Home Loan Deposit Scheme and HomeBuilder if the job market continues to improve."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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