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<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Australia has had almost 30 years of uninterrupted growth, but the economy is likely to suffer its biggest downturn since the 1930s.  </p><p>The Reserve Bank of Australia has warned that the coronavirus pandemic could hit economic growth by up to 10 per cent over the first half of 2020, with most of this decline taking place in the June quarter. </p><p>“National output is likely to fall by around 10 per cent over the first half of 2020, with most of this decline taking place in the June quarter,” RBA governor Philip Lowe said on Tuesday. </p><p>“The unemployment rate is likely to be around 10 per cent by June, although I am hopeful it might be lower than this if businesses are able to retain their employees on lower hours.” </p><p>Total hours worked in Australia are likely to decline by around 20 per cent over the first half of this year, Lowe maintained confidence the economy would “bounce back” on the other side of Covid-19.</p><p>“Inevitably, the timing and pace of this recovery depend upon how long we need to restrict our economic activities, which in turn depends on how effectively we contain the virus,” Lowe said.</p><p>Grattan Institute research <a href="https://theurbandeveloper.com/articles/charts-show-coronavirus-pushing-up-to-a-quarter-of-the-workforce-out-of-work">estimates</a> that Australia’s unemployment rate could rise to between 10 and 15 per cent due to the Covid-19 related shutdown, with the latter figure the highest since the great depression in the 1930s.</p><p>“We calculate that between 14 and 26 per cent of Australian workers—1.9-to-3.4 million people—could be out of work in the coming weeks as a result of spatial distancing measures to contain the spread of Covid-19, if they aren’t already,” Grattan analysis by Brendan Coates, Matt Cowgill, Will Mackey and Tony Chen says. </p><p>“The longer this downturn goes, and the worse it gets, the less likely the labour market and the broader economy can spring back afterwards.”</p><p>Related: <a href="https://theurbandeveloper.com/articles/wage-subsidy-loan-deferrals">Wage Subsidy, Loan Deferrals Improve Outlook</a></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/8f38f927-7986-49a7-94ea-81d7048f9dc8.png" width="1664"/></picture><div><span style="align-content:left;opacity:0.8">▲ More firms have seen demand fall than have been directly affected by the shutdown, Grattan Institute</span><span style="float:right;opacity:0.8">Grattan Institute</span></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>The RBA governor said that the twin health and economic emergencies would “cast a shadow over our economy for some time to come”, but that if the restrictions could be lifted more quickly, with the virus being contained, a “stronger recovery could be expected”. </p><p>“Whatever the timing of the recovery, when it does come, we should not be expecting that we will return quickly to business as usual.”</p><p>Lowe said that if Covid-19 restrictions were lessened by mid-year, and are mostly removed by late in the year, except for the ban on international travel, the RBA could expect the economy to begin its “bounce back” in the September quarter, with GDP growth of 6 per cent to 7 per cent in 2021 after a fall around 6 per cent this year. </p><p>Lowe added that the unemployment rate would remain above six per cent “over the next couple of years” with wage growth expected to decline to below two per cent, and inflation is expected to remain below two per cent over the next couple of years.</p><h2><strong>‘Cheaper to service a mortgage’, Australia’s housing market</strong></h2></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>As Covid-19 hits all major economies simultaneously, what is different about this down turn from those Australia has seen before is a result of an enforced shutdown and not a crisis from a bust after a boom, AMP Capital chief economist Shane Oliver has said.</p><p>“It was not caused by anything fundamental in the Australian economy.”  </p><p>“Because of that, I am hopeful that once the virus is under control, we can recover and reach a more normal functioning in a quicker way than we have before.”</p><p>Amid the economic uncertainty, Oliver says it&#x27;s worth highlighting the potential opportunities for investors prepared to take a long-term view.</p><p>“For one, interest rates will be lower, the official cash rate is currently sitting at the all-time low of 0.25 per cent. This will mean it’s cheaper to service a mortgage,” Oliver said. </p><p>“The residential property market is also likely to take a <a href="https://theurbandeveloper.com/articles/house-prices-commsec">hit</a>, which could provide lower entry points for people who have struggled—particularly in cities like Sydney and Melbourne—with affordability.”</p><p>Last week, UBS<a href="https://theurbandeveloper.com/articles/stimulus-not-enough-to-offset-house-price-falls-ubs-"> revised</a> its forecasts to a decline of at least 10 per cent in house prices over the coming year.</p><p>The<a href="https://theurbandeveloper.com/articles/charts-show-coronavirus-pushing-up-to-a-quarter-of-the-workforce-out-of-work"> Covid-19 induced economic crisis</a> is expected to hit more than half of all workers in the hospitality industry, according to Grattan research, along with lower-income workers twice as likely as high-income earners to be out of work, and younger Australians and women expected to be impacted as a result of working in occupations most affected by the response to Covid-19.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/f2a51f68-b48a-4681-9009-36566ea903af.png" width="1728"/></picture><div><span style="align-content:left;opacity:0.8">▲ The IMF has forecast Australia&#x27;s economy will face its worst year since the great depression.</span><span style="float:right;opacity:0.8">Grattan Institute</span></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><h2><strong>Global recession and Australia</strong></h2><p>The International Monetary Fund <a href="https://theurbandeveloper.com/articles/stimulus-not-enough-to-offset-house-price-falls-ubs-">forecasts</a> a 6.7 per cent downturn for Australia’s economy, followed by a rebound in 2021 of 6.1 per cent, as of its mid-April update.</p><p>The IMF also forecasts the global economy to contract by 4.2 per cent in 2020, and grow by 4.6 per cent next year.</p><p>The OECD has forecast that direct economic impacts of shutdowns will wipe out between 20 and 30 per cent of economic activity in most advanced economies, roughly 2 percentage points of annual GDP for each month, with world trade to fall by 11 per cent over the 2020 calendar year.</p></div></div></div></div></div>

Australia’s economy is likely to suffer its biggest contraction since the 1930s...

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<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>While the trend in Australia’s house prices remained positive through March, recording a 0.7 per cent rise, housing market activity is <a href="https://theurbandeveloper.com/articles/caution-urged-as-house-prices-start-to-fall">expected </a>to plunge as <a href="https://theurbandeveloper.com/articles/coronavirus-forces-unprecedented-rate-cut">increased</a> uncertainty spreads across the property market, and wider economy. </p><p>Recent <a href="https://theurbandeveloper.com/articles/property-market-coronavirus">market trends</a> have become<a href="https://theurbandeveloper.com/articles/property-market-coronavirus"> less </a>relevant as we move into a period of <a href="https://theurbandeveloper.com/articles/coronavirus-forces-unprecedented-rate-cut">unprecedented</a> uncertainty—Corelogic’s Tim Lawless says this is likely to further erode household confidence—dragging Australia’s economy into a recession for the first time in almost 30 years.</p><p>“If we are correct in our expectation that housing market activity is set to temporarily plunge, we could see increased volatility and a reduction in certainty creep into housing market measurements until activity picks up,” Lawless said.  </p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>CoreLogic index results as at March 31, 2020</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><table><thead><tr><th></th><th>MONTH</th><th>ANNUAL</th><th>MEDIAN VALUE</th></tr></thead><tbody><tr><th>Sydney</th><th>1.1%</th><th>13%</th><th>$882,849</th></tr><tr><th>Melbourne</th><th>0.4%</th><th>12%</th><th>$695,299</th></tr><tr><th>Brisbane</th><th>0.6%</th><th>3.1%</th><th>$506,553</th></tr><tr><th>Adelaide</th><th>0.3%</th><th>0.9%</th><th>$437,296</th></tr><tr><th>Perth</th><th>0.5%</th><th>-3.1%</th><th>$445,614</th></tr><tr><th>Hobart</th><th>-0.2%</th><th>4.2%</th><th>$483,032</th></tr><tr><th>DarwinDarwin</th><th>2% </th><th>-5.4%</th><th>$392,348</th></tr><tr><th>Canberra</th><th>0.6%</th><th>4.7%</th><th>$626,932</th></tr><tr><th>National</th><th>0.7%</th><th>7.5%</th><th>$554,229</th></tr></tbody></table></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Forty per cent of the nation&#x27;s auction&#x27;s were <a href="https://theurbandeveloper.com/articles/investors-look-at-options-in-downward-market-">withdrawn</a> over the weekend, with social distancing measures resulting in open homes and public auctions banned.</p><p>Looking at mortgage rates, consumer sentiment, new lending and auction clearance rates, CBA senior economist Belinda Allen describes these as the best indicators of the direction of housing prices.</p><p>“But with volumes now so thin previous relationships may not hold,” Allen said.</p><p>“Based on the current movement of all but <a href="https://theurbandeveloper.com/articles/coronavirus-forces-unprecedented-rate-cut">mortgage rates</a> there does suggest there is downside risk to dwelling prices forthcoming.”</p><p>Last week, AMP economist Shane Oliver said that if the recession should last more than six months – with unemployment up to 10 per cent or more, house prices could <a href="https://theurbandeveloper.com/articles/property-market-coronavirus">collapse</a> by up to 20 per cent.</p><p>Up until recently, Australia&#x27;s unemployment has sat above 5 per cent.</p><p>As Covid-19 continues to roil the economy, NAB&#x27;s chief economist Alan Oster expects unemployment in the order of 12 per cent.</p><p>“Which is awful,” Oster said.</p><p>“The magnitude and speed of the economic impact dwarfs anything we’ve seen in the post-war period in Australia.</p><p>“Hopefully the good news is, it’s very short, but that will all depend on the virus.” </p><p>Lawless adds that the extent of the impact on Australia&#x27;s property values is “highly uncertain”. </p><p>“Capital growth trends will be contingent on how long it takes to contain the virus, and whether additional constraints on business or personal activity are <a href="https://theurbandeveloper.com/articles/wage-subsidy-loan-deferrals">introduced</a>,” Lawless said.</p><p>“Once the virus is contained, we expect economic conditions to quickly improve, driving a turnaround in consumer spirits which should flow through to housing market activity. </p><p>“When that will be, remains highly uncertain.” </p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/d3e0d3bf-1cf0-4a59-a210-f9c830d46fc7.png" width="1110"/></picture><div><span style="align-content:center;opacity:0.8">▲ Australia&#x27;s housing values. CoreLogic</span></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><h2><strong>Housing values</strong></h2><p>The <a href="https://theurbandeveloper.com/articles/coronavirus-delays-federal-budget-15bn-loans-to-businesses">federal</a> and state government <a href="https://theurbandeveloper.com/articles/investors-look-at-options-in-downward-market-">stimulus</a> packages aim to help <a href="https://theurbandeveloper.com/articles/wage-subsidy-loan-deferrals">support</a> job retention and incomes amid Covid-19, in a move to<a href="https://theurbandeveloper.com/articles/older-australians-coronavirus-property-market"> reduce</a> casualties.  </p><p>As an <a href="https://theurbandeveloper.com/articles/star-group-stands-down-90pc-of-staff-covid-19">increasing number</a> of Australians face unemployment, Lawless says leniency from the banks for borrowers “should help to stymie” the number of properties hitting the market. </p><p>The data house expects the number of residential transactions to fall in the coming months. </p><p>“A consequence of tanking consumer confidence, a rising jobless rate, and more cautious lending practices,” Lawless said. </p><p>A major reduction in listing activity is also expected, with real estate reports noting they have more than halved in recent weeks, implying a “substantial drop in property listings in the coming weeks”.  </p><p>“Measures of housing values and prices rely on timely updates of recently sold properties, a material slowdown in turnover is likely to create some challenges over the coming months in how we report on market conditions,” Lawless said. </p></div></div></div></div></div>

While the trend in Australia’s housing values remained positive through March, the property market is expected to plunge.

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<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Australia’s <a href="https://theurbandeveloper.com/articles/how-will-coronavirus-affect-property-prices">housing market</a> is inevitably being impacted by social distancing measures and the market’s weaker confidence due to the coronavirus pandemic, with preliminary clearance rates taking a hit this week, falling to 61.3 per cent across its combined capital cities.</p><p>Despite the escalating health crisis and <a href="https://theurbandeveloper.com/articles/coronavirus-delays-federal-budget-15bn-loans-to-businesses">related economic fallout</a>, the weekend experienced the second busiest for auction activity to date this year. Figures show 2,539 homes were taken to auction across Australia’s combined capital cities.</p><p>The preliminary auction clearance rate of 61.3 per cent is up on a year ago when home values were falling, but the impact of Covid-19 has begun to be felt. </p><p>Corelogic described this week’s preliminary auction results as “marking a turning point in buyer and seller sentiment”, with withdrawal rates rising and vendors thinking twice about testing the market as buyers lose confidence or choose to avoid public gatherings.			</p><p>Corelogic says it’s likely that the preliminary auction clearance rate of 61.3 per cent will revise down to below 60 per cent for the first time since mid-2019 as remaining results are collected.</p><p>In comparison, the previous week saw 2,274 homes taken to auction returning a preliminary auction clearance rate of 70.6 per cent, before revising down to a final clearance rate of 65.3 per cent.		</p><p>To date, Corelogic says there is no evidence of “reduced housing values”, although notes that it is clear, transactional activity will be temporarily disrupted in the coming weeks and months. </p><p>“The extent of this disruption depends on how long it takes to contain the virus and for sentiment to recover,” the data house notes. </p><h2><sub><strong>Housing values</strong></sub><strong> </strong></h2><p>Speaking on the housing market, AMP economist Shane Oliver said that if the recession should last more than six months – with unemployment up to 10 per cent or more, house prices could collapse by up to 20 per cent in a worst case scenario.</p><p>While social distancing is likely to delay property transactions, Oliver said AMP’s base case is for a rise in unemployment to around 7.5 per cent. </p><p>“This is likely to drive a 5 per cent or so dip in prices ahead of a property market recovery into next year as the economy bounces back and pent up demand is unleashed again helped by ultra-low interest rates,” Oliver said. </p><p>On Friday, the federal budget was postponed until October, as Scott Morrison outlined that the pandemic is likely to remain<a href="https://theurbandeveloper.com/articles/coronavirus-delays-federal-budget-15bn-loans-to-businesses"> a problem for at least six months</a>. </p><p>Morrison&#x27;s<a href="https://theurbandeveloper.com/articles/coronavirus-delays-federal-budget-15bn-loans-to-businesses"> $66 billion stimulus package</a>, announced Sunday, dwarves the<a href="https://theurbandeveloper.com/articles/coronavirus-stimulus-package-development-construction-industry"> initial $17.5 billion economic stimulus package</a> announced eleven days ago, in a bid to “cushion the economy” as Australia goes into social shut down. </p><p>The measures follow the <a href="https://theurbandeveloper.com/articles/coronavirus-forces-unprecedented-rate-cut">Reserve Bank of Australia’s emergency cash rate cut to 0.25 per cent</a> last week.</p><h2><sub><strong>Rent relief model during Covid-19 </strong></sub></h2><p>Canberra has also announced that both commercial and residential tenants struggling to pay rent, would receive assistance as part of the coronavirus stimulus package.</p><p>“To ensure that in hardship conditions, there would be relief that would be available, and ensuring that tenancy legislation is protecting those tenants over the next six months at least,” Morrison said on Friday. </p><p>“Everyone does have that role to play, and that will include landlords for people who are enduring real hardship.” </p><p>Morrison said that this work will be done by states and territories. </p><p>“And that work will be led by Western Australia, together with New South Wales, working with all other states and territories, to bring back some model to be applied in hardship cases.” </p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><em>Coronavirus update note: </em><a href="https://theurbandeveloper.com/articles/shopping-malls-stay-open-auctions-banned-"><em>Auctions and open house inspections are now banned, under latest restrictions</em></a><em> following national cabinet’s meeting on Tuesday night. </em></p></div></div></div></div></div>

Australia’s housing market is inevitably being impacted by the social distancing measures and the market’s weaker confidence from the coronavirus.

AMP ECONOMIST SHANE OLIVER