- The coronavirus has begun to soften auction clearance rates, as less people turn out to auctions in capital cities.
- As the outbreak continues, and the economy weakens, property sales are expected to suffer in the short-term.
- Another rate cut expected to be announced on Thursday could offset pressure on mortgages, and boost a potential recovery, as fears of a recession loom.
- Visit Business Insider Australia’s homepage for more stories.
While the coronavirus takes global stock markets for a wild ride, it’s left Australia’s sacred cow, its beloved property market, well enough alone.
Take auction clearance rates, one of the market’s leading indicators, for example. Over the weekend they showed the first signs of softening, although haven’t fallen significantly yet.
“The impact so far has been pretty muted. Clearance rates have been down a touch but they’ll still be pretty solid numbers when they’re finalised later this week, probably ending up around 70% in Sydney and 65% in Melbourne,” Domain economist Trent Wiltshire told Business Insider Australia.
“There are fewer people at inspections but it doesn’t seem like the news has flowed through to the property market although there is some risk to the short-term outlook.”
AMP Capital chief economist Shane Oliver has warned capital city clearance rates are certainly headed south.
Prelim Domain auction clearances
Syd 73% =final ~67%, yr ago 51%..sales ~+60% on yr ago.
Melb 68% =final ~61%, yr ago 49%..sales ~+80% on yr ago.
Expect a significant slowing due to coronavirus & the soft econ..this may already be impacting,along with wet weather in Syd#ausecon pic.twitter.com/fia1X7Z4fL
— Shane Oliver (@ShaneOliverAMP) March 14, 2020
“Expect a significant slowing due to coronavirus and the soft [economy],” he tweeted. “This may already be impacting, along with wet weather in [Sydney].”
It stands to reason. The Australian government has already announced strict containment measures, including two weeks of self-isolation for all foreign visitors and a ban on gatherings of 500 people, with caution likely to keep buyers at bay.
While Wiltshire said it’s too early to tell how the virus might affect prices, he said it’s reasonable to expect a marked slowdown in sales for a period, as the coronavirus force prospective homebuyers to put their search on hold.
“We’re headed into the Easter school holiday period as well which is typically a quiet few weeks for the market, so it’s going to be really difficult to track the impact though over the next month or so anyway,” Wiltshire said.
On the other side of the coin, an out-of-cycle rate cut could offer some long-term support.
“The RBA will cut interest rates again on Thursday by the looks of it which should help hold the market up,” Wiltshire said. “We’ve seen in recent years that people have used low-interest rates to build up significant buffers, and another rate cut will again ease some of the pressure on people with mortgages.”
Cheap money has in the past year appeared to help fuel rising house prices nationally, and especially in the Sydney and Melbourne markets where values are back around all-time highs, although may do little to coax buyers out over the next few weeks.
What’s more pressing will be how the economy fares as a result. Wiltshire, like other economists, believes Australia is headed into a recession this year.
“The economy looks like it’s going to really slow down dramatically over the next few weeks at least,” he said. “Again a rate cut is going to take the pressure off people who might have their work hours cut or who potentially might lose their job, as well as business owners who might be looking to shut down for a few weeks.”
Just as important will be what the government does to kickstart a speedy recovery, with stimulus needing to be both short-term and targeted, according to Wiltshire.
“We’ll be seeing whether they going to provide more funding, or cash handouts to households and to businesses to help with cash flow so people can make their immediate commitments over the next few weeks because the thing is, yes, there is going to be a short term, sharp slowdown,” he said.
“But if contained, things will rebound quite quickly, and that goes for the property market as well.”
With the situation changing quite quickly though, it’s difficult to tell exactly what the fallout might look like.
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