As the delta variant of COVID-19 spreads, forcing Sydney, Melbourne and Adelaide into lockdowns, it is fair to expect property markets in our two biggest capital cities will be impacted in the short-term but will bounce back strongly once they reopen if the experience is an indicator.
A research report from CoreLogic has found that while transaction activity, including auctions, slows in lockdown periods, there is a 'catch up' in home purchases as restrictions ease.
Also, property values remained resilient through lockdowns and generated substantial growth as social distancing restrictions eased. At the same time, it's essential to acknowledge the part extensive government stimulus and institutional support for the housing sector has played in underpinning property values.
Impact on auction markets
Tellingly, while some properties were withdrawn from auction during lockdowns, the CoreLogic report found that during lockdowns, more properties sold prior to and after auction.
In Sydney, the proportion of properties sold prior to auction was 23.1% since 2016. Those properties selling before auction increased to 28.0% during stage 2 restrictions last year. It was over 35% for the two weeks to 4 July 2021. In Melbourne, properties selling prior to auction also increased with each lockdown.
Robust sales volumes
Strong sales volumes have been another significant element in the performance of real estate markets in recent times. In the last financial year, CoreLogic estimates there were approximately 582,900 transactions nationally, compared to an annual average volume of 455,346 over the last decade.
Ongoing government support will play a role
In the context of closed international borders, understanding the factors driving demand for housing is manifold. CoreLogic suggests first home buyers have played a part, with their demand brought forward by Commonwealth Government incentives such as the First Home Loan Deposit Scheme, HomeBuilder and the state-based grants and stamp duty discounts. Record low mortgage rates also have turbo-charged housing demand and potentially encouraging some prospective buyers who would have otherwise remained inactive to make a move.
When considering the current environment, experience suggests a jump in sales activity is likely when restrictions ease across Sydney. Throw in new government incentives such as the 'Family Home Guarantee' that allows single parents to purchase a home sooner with a deposit of as little as 2%, and it's mor unreasonable to expect first home buyers will be out in force across Sydney when restrictions end.
Stable values, especially in smaller capitals
Another central premise of CoreLogic's pandemic analysis is the relative stability of property values. Nationally, values recorded a peak-to-trough decline of just -2.1% through 2020, before a recovery trend in October 2020. Moreover, dwelling prices in the smaller capital cities "were virtually untouched by the pandemic, if not further fuelled by low-interest rate settings". With a tight labour market and low COVID-19 case numbers, Canberra, for example, did not record a single month of dwelling value decline amid lockdowns. According to CoreLogic, Canberra has continued to hit a fresh record high value every month since September 2019.
The length of the Sydney lockdown will be a critical factor in a market rebound. An extended lockdown could weaken property market conditions. To this end, the NSW Government's decision to close construction sites and non-essential retail for two weeks and tighten restrictions in hotspot Sydney local government areas might prove the circuit breaker that enables Australia's biggest economy to reopen sooner and pave the way for strong spring property market activity.