Uncertain sellers heavily discount property prices in capital cities

author-avatar By on May 15, 2020
Uncertain sellers heavily discount property prices in capital cities

Photo by Paul Macallan on Unsplash

COVID-19 has heightened fears among home sellers in April, with many revising their asking prices downwards.

That's according to Domain, which found every capital city apart from Hobart and Darwin saw an increase in the proportion of live property listings with prices discounted. 

Sydney had the highest proportion of listings discounted at 13.1%, almost double last year's figure, followed by Melbourne at 10.7%, almost triple last year's.

It's a striking comparison to this time last year, which was around the price trough of the 2017-19 downturn in the two cities. 

Adelaide had the third highest proportion of discounted properties at 8.3%, more than double the rate in 2019.

Proportion of live listings with prices discounted 

City April 2020 April 2019 Annual change, percentage points
Sydney 13.1% 6.7% 6.4%
Melbourne 10.7% 3.7% 7.0%
Brisbane 7.3% 4.7% 2.6%
Adelaide 8.3% 3.5% 4.8%
Perth 6.8% 5.7% 1.1%
Canberra 8.1% 5.9% 2.2%
Hobart 2.2% 2.3% -0.1%
Darwin 3.5% 4.2% -0.8%

Source: Domain

Domain Senior Research Analyst Dr Nicola Powell said a number of factors contributed to the discounted prices and worried sellers.

"As social distancing rules escalated and an economic shutdown became a reality, the impact was immediate on certain market indicators with vendors adjusting prices being one," Dr Powell said. 

"The economic uncertainty and looming job security fears forced many sellers to drop their asking prices.

"The rising portion of discounted homes aligned to the shutdown of non-essential services, the temporary ban on on-site auction gatherings and open inspections and this trend was consistent across all Australian capital cities."

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 14 July 2020. View disclaimer.

Although there was a greater proportion of listings discounted, the level of price adjustments was roughly on par or lower than last year. 

Canberra was the only city to record a marginal increase in the percentage that prices were shaved. 

Sydney and Melbourne had more properties discounted, but the degree of the discounts was smaller compared to last year. 

In April 2020, homes were discounted by 4.3% and 3.7% in Sydney and Melbourne respectively, while in April 2019 they were discounted by 4.9% in Sydney and 4.6% in Melbourne.

Dr Powell said this could indicate a more broad downward trend in the property market. 

"These early signs suggest a broader market slowdown with more properties discounted by more marginal amounts rather than hefty discounts on fewer homes," she said.

"The proportion of properties discounted tends to align with price movements, providing a leading indicator for price growth.

"During an upswing fewer properties are discounted and the opposite occurs during downturns." 

House prices could drop by 30%

Earlier in the week, Commonwealth Bank (CBA) outlined two possible scenarios in which the economy would recover from the fallout from COVID-19. 

The worst-case scenario saw a 32% drop in house prices and assumed a prolonged downturn as a result of the pandemic, with unemployment to hit 9% this year before falling to 6.5% by 2022. 

A shortened downturn, or V-shaped recovery, would see house prices drop by 'just' 11%, with the unemployment rate marginally better off at the end of the year at 8.25%.

NAB also said in April house prices could drop by a cumulative 30%, potentially falling by 20.9% in 2020, 11.8% in 2021 before rebounding by 2.5% in 2022. 

ANZ was more optimistic, and said house prices would drop by just 10% nationally, but Sydney and Melbourne would be worse hit, dropping 13%. 


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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