Professionals Gosford If we look at previous economic downturns, such as the 1991 recession or the Global Financial Crisis in 2007, Australian property certainly fared better than other sectors.
Consumer confidence is a big influencer
Share markets are extremely liquid so they are much quicker to react to negative sentiment than non-liquid assets, like property. Nevertheless, low levels of consumer confidence will eventually make a mark on the residential property market.
The time-consuming nature of buying and selling property means the market doesn’t respond to a fall in confidence as rapidly – and in most cases, as substantially – as the share market does.
Property prices could react
Right now, the broader economy is mostly faced with low confidence because of widespread health concerns, the shut down of public venues and concerns about job security.
Given this, the buying and selling of properties might not be a high priority right now, which could lead to a fall in demand for properties in the near future.
This doesn’t necessarily mean we will see a significant and rapid fall in prices – but there is likely to be a reduction in turnover.
Lower demand, reduced turnover and potentially lower prices will be a challenge for the market, but given we are dealing with a virus pandemic and not a global financial crisis, the hardship will likely be short-lived.
The 0.25% cash rate will keep credit available
This month, the Reserve Bank cut interest rates to a record low has vowed to keep the cash rate at the current level of 0.25 per cent until progress is made towards full employment.
They are confident inflation will be sustainable within the 2 to 3 per cent target band.
Even before the onset of COVID-19, the RBA had made little progress towards full employment and underlying inflation had not been above 2% for four years.
Given this – and with unemployment expected to rise – it is likely that official interest rates will remain at 0.25% for an extended period of time to ensure credit is still available.
The Federal Government stimulus expected impact
The Federal Government has delivered two major stimulus packages worth $189 billion, with a third package in the pipeline.
Both the Federal Government and the RBA say they will launch more stimulus if the need arises.
While these packages are almost entirely focused on ensuring credit markets remain open and employers retain workers, the stimulus will have both short and long-term impacts on the property market.
Short term impacts of government stimulus
Record-low interest rates mean access to finance remains available – but whether or not this will support the property market rests on buyer activity. At this stage, it’s very much a case of ‘watch and wait’.
Long term impacts of government stimulus
The cost of borrowing is likely to remain at 0.25 per cent for some time. It means buyers will have the advantage going forward, which could stimulate the market.
There’s light at the end of the coronavirus tunnel
Once COVID-19 is under control, the housing market is likely to be buoyed by a combination of record-low mortgage rates and the prospect that they will remain at these levels for some time.
In addition to this, a slowdown in property transactions in the coming months will likely create more pent-up demand for housing, which will burst once consumer confidence begins to sustainably improve and the housing market commences its recovery.
Overall, these factors should see a fairly swift rebound in property demand once the COVID-19 crisis has passed.