Property market weakens amid coronavirus restrictions
There is more than likely to be a downturn in the property market due to uncertainty: uncertainty of whether people will have a job, the uncertainty of how long we will be housebound for - all this leads to low confidence in the market and house purchases are a high confidence exchange.
Whilst the restrictions call for changes to the way property is currently being sold, I do believe the market is set up for online inspections. That said, I feel for the next couple of months the market will be quiet. The banks are offering options for people to freeze mortgages for up to 6 months which is more than likely a better outcome than selling your largest asset for a reduced price.
The consultancy Capital Economics said on Wednesday that the restrictions on viewings would “probably result in lower home sales” and there was even a danger the government would ban the buying and selling of real estate altogether.
The rise in unemployment as the Australian economy rapidly shuts down would limit demand, Capital said, with prices likely to fall by up to 10% later in the year.
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AMP Capital chief economist Shane Oliver has predicted that unemployment will likely shoot up to about 10 per cent and this could result in a 20 per cent drop in Melbourne and Sydney house prices. He also said while the Reserve Bank last week moved to cut interest rates to a record low of 0.25 per cent - and they were expected to stay there for some time - a recession was now likely. This would cause the current unemployment rate of 5.1 per cent to double.
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The Australian housing market was boosted from mid-last year by the combination of the Federal Government removing the threat of changes to negative gearing and capital gains tax, rate cuts and regulatory easing.
However, the coronavirus pandemic and associated shutdowns to economic activity now pose a significant threat to the outlook for property prices. The question is how big the threat is.
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If we look at both the 1991 recessions and the 2007 financial crisis, and even more recently the downturn in the market 12 months ago, it has not taken long after these events to rebound.
Given the low-interest rates and availability of credit, I believe once we are through this pandemic, say by spring this year, we will continue to see a positive outlook on the property market.
People have been once again reminded how volatile the share market is. If interest rates remain low (which considering the current 3 year fixed rates are in the low 2%), I believe they will continue to invest in property
Our recommendation right now is to think about what's best for your finances. If needed, get some independent financial advice.
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