Although significant drops in Sydney and Melbourne house prices have been experienced in 2020, property experts say the worst may be over – with stark predictions of a market crash brought on by COVID-19 appearing to have been overestimated. Nationally, residential property price falls of up to 15 percent had been predicted by some industry experts, though this sentiment is being challenged by a strengthening market.
Annually, prices have risen 12.5 percent in greater Sydney. This impressive market rebound was sharpest for houses on the lower north shore, with the median increasing by 5.2 percent, or $130,000 – to $2.63 million. Median prices in the inner-city and eastern suburbs have increased by 14.1 percent annually, and an incredible $120,000 over just 3 months, reaching a record average of $2.55 million.
House prices have rebounded significantly, increasing by more than $100,000 in some areas of the city. Over the September quarter, the median house price for the city has jumped about $13,300, or 1.2 percent, to $1,154,406. However, prices have fallen overall for apartments, albeit at a slower rate – with average prices dropping 0.2 per cent to $732,423.
Industry researchers assert that figures taken during the height of the pandemic came during a period of very low sales activity, and should be viewed with caution. This is in light of findings such as those by PEXA – which collects real-time property transactions on its e-conveyancing platform – who reported that residential values fell 9 percent in NSW and 14 percent in Victoria in the first nine months of 2020.
The property market was slowed by the temporary banning of on-site auctions, affecting both Sydney and Melbourne – where lockdowns all but brought sales to a complete stop. Managing director of SQM Research, Louis Christopher, says it is hard to ascertain exactly what is going on during times of low sales activity, and, "you have to be very careful" when attempting to interpret the data.
"We do think, however, the darker scenario of a house price crash has now been averted," Christopher said.
"The lead indicators of listings – clearance rates – and asking prices suggest the market is starting to look up in Sydney, but I think that Melbourne still has a lot of challenges ahead because the economy has been hit hard and that's not good for house prices," he continued.
Research by Moody’s ratings agency has established that areas dependent on industries such as tourism, hospitality and retail were likely to see the largest increase in mortgage delinquencies, which in NSW rose to their highest levels in May.
Strong first-home buyer activity in the coming months is expected to bolster the market – however some insiders are saying that elevated job insecurity and low population growth will have a significant impact on the market.
NAB economist Alan Oster agrees with this sentiment, saying unemployment and poor population may be an issue here to stay for some time.
This indicates that some industry experts are still hesitant to declare that market unscathed.
“We would not expect Sydney house prices to go up from here. Certainly low interest rates are still helping and the RBA is probably going to help with cuts next week, but it’s not as though credit has been expensive … the demand for credit is just not there.”
The supply shortage had allowed the market to hold up better than expected, Mr Oster asserts, though prices may still fall by the best part of 10 percent, particularly in the Sydney and Melbourne CBDs.
“We’re not walking away from our view that house prices are more likely to go down than up,” he said.
While apartment prices remain steady, government incentives in the form of stamp-duty concessions and grants for buying band-new make purchasing off-the-plan an attractive option in the current market. In NSW, eligible first home buyers can access a full or partial exemption on stamp duty (or transfer duty) payments if the value of the property is $800,000 or under. Many off-the-plan projects qualify for the $25,000 HomeBuilder grant, and a number of developers are matching this offer for both owner-occupiers and investors.