Many, if not most, property experts expected property values to drop by up to 30% over 2020. Most pundits and many articles suggested the COVID-19 pandemic would decimate property values as small business and employment also took a hit.
This didn’t happen. Property insight firm CoreLogic recently posted a news piece that showed momentum to finish 2020 and a strong start to 2021. The drop in values didn’t eventuate and this article explores some of the reasons why.
Rather than fall off a cliff the average value of Australian property only fell by 1.7%. In a positive sign for the economy and future prospect, there was a modest rise of 0.4% in October. This stability in the property market has led many to question why the sector performed so strongly in the middle of a pandemic.
There are a number of interrelated factors here that may be relevant.
Firstly, money is cheap. Interest rates are at an all time low. Repayment costs are not high and those that could afford a home loan were in a position to borrow more and could use it to spend a little more buying a house. Record low interest rates stimulated spending across the real estate market.
There were significant job losses during the pandemic. Unemployment rates spiked. But it’s thought that those most negatively impacted did not own property. They were either renting their own home or they did not have investment properties.
Those that did own property have had some support this year. They’ve been given reprieves by their lenders through mortgage repayment holidays. Landlords who had property where their tenants were struggling further had access to grant schemes when their tenants were struggling to pay rent.
These reprieves, from banks and through Government support, have provided property owners with a buffer. This means that there has been no groundswell of properties placed on the market by distressed owners needing to sell. This buffer protected those most at risk of selling in 2020. Whilst the economy was turbulent, the economic support acted as a liferaft for those who needed it.
And for those who suffered rental losses, many landlords are able to weather some time without rent or when their property is empty. This also further meant less property on the market.
Another factor that impacted property values in 2020 was stock levels. Government and lender support meant there were less distressed sellers flooding the market. Further, restrictions meant that many who were considering selling did not place their properties on the market during heavier lockdowns and periods of restriction. There were still buyers in the market but they had fewer properties to choose from and this kept residential property values relatively stable during this time.