By late February home sales had lifted to the highest levels in more than six years, while housing construction had finally picked up after a protracted two-year downturn.
It is a markedly different outlook to the current state of the market, with home sales likely to more than halve in the short-term as the crisis of Covid-19 uncertainty weighs on the residential sector.
In a note on Australia’s housing market, UBS analysts George Tharenou, Carlos Cacho and Jim Xu said that house prices will inevitably start to fall.
“We expect existing home sales volumes will collapse as long as the ban on auctions and open home inspections remains.”
And with the ban on public auctions and open home inspections likely to persist for months—NSW has formalised its lockdown until June at the earliest—the near to medium-term outlook for home sales is bleak.
It is expected a significant proportion of the 3,051 capital city homes scheduled to go to auction this weekend will be withdrawn.
Final auction reporting figures from last week showed the clearance rate dropping to its lowest levels since Corelogic commenced auction reporting.
More than 50 per cent of properties were reported as withdrawn.
Corelogic house price index
^ Corelogic Hedonic Home Value Index, 31 March 2020.
The extent of the fall in house prices—the more bearish forecasts are more than 20 per cent across the year—will be determined in large part by the length of the recession and how far unemployment rises.
“Capital growth trends will be contingent on how long it takes to contain the virus, and whether additional constraints on business or personal activity are introduced,” Corelogic head of research Tim Lawless said.
“Once the virus is contained, we expect economic conditions to quickly improve, driving a turnaround in consumer spirits which should flow through to housing market activity.
“When that will be, remains highly uncertain.”
If price falls become a material risk to the economy, the government would need to pull the lever on policy intervention, Tharenou said.
The expansion of the first home buyer scheme, temporary reductions in land tax and stamp duty or support for the build-to-rent industry are all potential policy options.
“If price falls do become very significant and potentially a macro-stability risk, we would expect further government support,” Tharenou said.
In its March minutes published on Wednesday, the RBA said it is likely that the “material contraction” in economic activity would spread across the March and June quarters—and potentially longer.