What Impact Will Melbourne’s Lockdown Have on House Prices?


With Melbourne returning to lockdown conditions amid an acceleration in virus cases, it’s worthwhile looking back at the housing markets performance through the earlier lockdown period.

From midnight 8 July, residents of Melbourne and the Mitchell Shire were be unable to leave their home unless they were shopping for essential items, seeking or giving medical care, exercising or required to study or work away from home.

The return to lockdown measures comes as the Covid-19 curve accelerates, with the number of new daily cases reaching record highs over the past few days.

Although onsite auctions and open homes aren’t listed specifically as restricted activities, the implication is that the renewed lockdown measures include a ban of on-site auctions and open home inspections.

Over the previous lockdown period, which was in place between late March and mid-May, housing market activity was significantly disrupted.

The previous lockdown period saw real estate agent activity across Victoria slump by almost 70 per cent before gradually improving after Easter, with a sharp rise in activity once lockdown policies were eased around mid-May.

The drop in real estate agent activity foreshadowed a sharp drop in new listing numbers across Melbourne.

Between mid-March and early-May the number of new listings added to the Melbourne housing market more than halved, to be 34 per cent lower compared with the same time a year ago.

As restrictions eased and consumer sentiment recovered to more normal levels, new listing numbers increased and were tracking 18 per cent higher than a year ago through the first week of July.

With advertised stock levels falling and a plunge in consumer sentiment, the lockdown period also saw sales activity drop to the lowest level since the early 1990s (excluding the seasonally slow January months).

Corelogic’s estimate of home sales dropped by 8.1 per cent in March before plunging by 38.1 per cent in April.

As restrictions eased and both sellers and buyers became more confident, the number of home sales has picked up over the past two months to be 59 per cent higher than the April low.

Monthly sales with decade average in Melbourne

Graph of monthly sales with decade average in Melbourne during Covid-19 by CoreLogic.

^Source: CoreLogic

Auction results provided a further signpost of the housing market’s performance through the lock-down period, with Melbourne clearance rates falling to just 20 per cent in early April after consistently tracking around the mid-70 per cent range prior to March 2020.

The drop in clearance rates was influenced by a substantial number of withdrawn auctions, while the large proportion of successful auctions (around 80pc) were actually sold before the auction was held signalling a lack of vendor confidence to test the market under the hammer.

Since restrictions were lifted, clearance rates have returned to the early 60 per cent range, and the proportion of withdrawn auctions and "sold priors" have normalised.

Melbourne also saw home values starting to trend lower from April, recording a 2.3 per cent drop in dwelling values over the June quarter, which has been the largest decline to-date across the capital cities through the Covid-19 period.

Month-on-month change in dwelling values Melbourne

A graph of Melbourne home values, house prices during Covid-19 according to CoreLogic.

^Source: CoreLogic

Looking forward, the six-week lockdown period will result in renewed downwards pressure on Victoria’s economy, including a worsening in labour market conditions, especially in those industries such as food and accommodation services and the arts and recreation services, that have proven to be extremely sensitive to strict social distancing measures.

Consumer sentiment readings, which are highly correlated with housing activity, have already been dragged lower due to the acceleration in Victoria’s virus curve, and will likely fall further as consumers react negatively to the economic and social implications of the lockdown along with increased uncertainty.

If the housing market’s performance through the previous lockdown is anything to go by, it’s highly likely that Melbourne property transaction activity will see a sharp drop over the next six weeks, with both a material decline in new listings as vendors lose confidence in testing the market, and a lower number of sales as buyers retreat to the sidelines.

Real estate agents are arguably more prepared to switch towards an online selling environment, however, as we have seen through the previous lockdown period, the negative impacts of weaker confidence and less ability to inspect a property is likely to result in less buying and selling activity.

The impact on home values is harder to see. The downturn in Melbourne home values has been mild to date, and dwelling values were continuing to fall after restrictions were lifted amidst rising market activity.

A return to a shortage of advertised supply should help to insulate home values from material declines, as will persistently low interest rates, ongoing government stimulus and forbearance measures for distressed borrowers which will help to keep urgent sales off the market.

Once the restrictions are lifted in six weeks-time there is likely to be a level of pent-up demand which will see housing activity improve, as it did when previously when social distancing measures were relaxed or lifted.

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