Homes have dropped in value for the third consecutive month, falling -0.6 in July, as economists predict house prices could fall by 10 per cent over the year.
Corelogic’s home value index results for the month were slightly improved over July, up from the -0.7 per cent decrease in June.
Melbourne dwelling values dropped -1.2 per cent and Sydney -0.9 per cent, leading the decline ahead of Brisbane at -0.4 per cent, however, Canberra and Adelaide were in positive territory.
Regional markets showed more resilience than their metropolitan counterparts, with values remaining steady or increasing in some parts.
There was some disparity between unit and house prices, with units -0.5 per cent down in July and -1.3 per cent for the quarter compared to house prices at -0.6 per cent for the month and -1.8 per cent in the quarter.
Corelogic home price index: July
^ Source: CoreLogic, index results as at 31 July, 2020
Corelogic head of research Tim Lawless said the drop in house prices so far was less than expected at the start of the pandemic.
“The impact from Covid-19 on housing values has been orderly to-date, with Corelogic’s national index falling only 1.6 per cent since the recent high in April and housing turnover has recovered quickly after it’s sharp fall in late March and April,” Lawless said.
“Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn.
“Advertised supply levels have remained tight, with the total number of properties for sale falling a further 4.3 per cent in the four weeks to 27 July, sitting 15.2 per cent below where they were this time last year.
“Additionally, increased demand driven by housing-specific incentives from both federal and state governments—especially for first home buyers—have become more substantial.”
Despite recent improvements in the market, Capital Economics economist Ben Udy said they could reiterate pre-Covid-19 predictions.
“We ultimately expect house prices to fall by 5-10 per cent,” Udy said.
Although lower supply should help limit the decline in the near term, auction clearance rates would likely fall, according to the economist.
“The weakness in house prices will weigh on dwellings construction, limiting the recovery in economic activity and GDP growth,” Udy said.
“Indeed, dwelling approvals fell a further 4.9 per cent [month on month] in June to their lowest level since 2012, consistent with dwellings investment falling further in the coming months.”
The real challenge for house prices would be seen in October when fiscal support was set to taper, and when repayment holidays expire at the end of March next year.
Corelogic’s head of research said the medium-term outlook remains skewed to the downside.
“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience,” Lawless said.
“The extent to which this causes additional downwards pressure on home prices depends on how the Australian economy is travelling at that time.
“Further virus outbreaks present a clear and present danger to the depth and length of the recession, and the performance of the housing market.”
Auction markets showed a temporary recovery through June and early July but have since weakened as Melbourne moved back into lockdown.
The weekend results showed the clearance rate remained steady at 65.3 per cent compared to 66.4 per cent last year with 1,162 homes taken to auction, however the number of auctions in Melbourne was down 189 on the week before.
Corelogic quarterly rental data revealed last week that regional areas were starting to take a stronger hold of the rental market while metropolitan areas were trending downward.
Lawless said a drop in international tenants and surge in construction activity were some of the factors affecting supply.
“Additionally, the significant employment decline across food and accommodation services, arts and recreation services is compounding the weak rental demand, as these sectors workers are more likely to rent,” Lawless said.
“Anecdotally, the transition of short-term accommodation—namely Airbnb—to permanent rentals is temporarily adding to supply.”