Over the last year or so, much has been made of the impact COVID is having on the property market. During this time, particular attention has been given to longer term trends, like pricing changes and domestic migration statistics. However, it is also worth looking at the more immediate effects COVID restrictions are having on market activity.
All states and territories have now identified lockdowns as key to controlling new case numbers until vaccination rates increase. Such restrictions usually have a direct impact on property market activity, either limiting or completely preventing in-person inspections and auctions. They also indirectly shape the market by influencing both the nature and timing of buying and selling decisions.
Here we look at the exact impact COVID lockdowns have had on the Australian property market. We explore their connection to movements in key market indicators, like sales volumes and confidence levels. We also outline how these change over time, from the lead up to a lockdown through to the easing of restrictions.
The impact on market confidence
Early in the pandemic, significant attention was given to how restrictions were impacting both buyer and seller confidence. This was particularly the case as Melbourne’s second wave began to unfold. As cases increased, restrictions tightened, and many worried that a slowing Melbourne market could negatively impact the broader Australian market.
Initially, this concern seemed justified, with Stage 4 restrictions having a major impact on Melbourne property prices and selling activity. We also saw some impact on other markets, with most capitals experiencing at least a slight dip. However, these issues were generally short-lived, and the dire predictions made by many did not come to pass.
In fact, the stability of other markets actually created opportunities, with many going on to achieve significant and sustained growth. Even in Melbourne itself, the market adapted and managed to find a way to work within the new rules. So, while activity definitely slowed, certain segments kept ticking along and the action began ramping back up as restrictions eased.
This is a pattern we have seen repeated with most subsequent lockdowns, both in Melbourne and across the other capitals. Even short “circuit breaker” lockdowns generally cause a slight dip in market confidence, with some sellers choosing to defer their campaign. However, this impact generally does not last, and the market usually rights itself once restrictions start to ease.
Interestingly, over the last 12 – 18 months, auction outcomes have also changed quite significantly. While clearance rates have broadly dipped, this is largely due to the significantly higher proportion of properties being withdrawn. This is particularly prevalent during lockdowns, when in-person auctions are either restricted or prohibited.
At the same time, we have seen more properties being sold prior to auction and fewer properties being passed in. All of this suggests that vendors are only choosing to proceed to auction if they believe a sale is likely. It also acknowledges how important having potential buyers face-to-face at an auction is to achieve a great sales result.
Reduced activity vs Deferred decision making
Somewhat surprisingly, COVID restrictions have been consistently shown to have a cyclical impact on property market activity. This starts when a lockdown is announced, with listing numbers falling and sales drying up. This slower pace tends to continue until new case numbers begin to decline and restrictions start to ease. At this point, activity begins to ramp up again and the market usually goes through a period of “catch-up”.
So, rather than reducing the total number of sales, most lockdowns have actually seen sales simply deferred. RBA Assistant Governor, Luci Ellis, highlighted this phenomenon in an address to the AI Group, noting how rapid recovery can be. As part of this, Ms Ellis pointed out that demand does not dip during lockdowns – the ability to fulfil that demand does.
We see this in the strong sales volumes that have been achieved over the last year. Due to local lockdowns and general global uncertainty, transactions were actually significantly down over the first half of 2020. However, once restrictions eased, sales “snapped back” and FY21 saw the highest volume of sales in 15 years.
It is also important to note here that, while demand for properties reduces during periods of lockdown, so does supply. As such, weakening sales during these times is as much a question of seller confidence as it is buyer confidence. It also means that weaker sales volumes will not necessarily mean weakersales prices during lockdown periods.
The importance of government and institutional support
In their The Housing Markets Through Pandemic Lockdowns report, CoreLogic called out the key role COVID support packages have played. As part of this, they note how programs like JobKeeper have significantly boosted market resilience. And this is a logical connection, given that the majority of JobKeeper recipients were homeowners with a mortgage.
In addition to support payment schemes, governments have also invested heavily in encouraging specific real estate market segments. First home buyers, for example, have benefited from programs like the first home loan deposit scheme and other state-based supports. This has seen them become one of the most active buyer cohorts throughout the pandemic.
But it is not just governments propping up the property market, with large institutions like banks also playing a role. Payment deferral programs have been particularly effective, allowing those struggling to cover their mortgage, to hold onto their homes. This, in turn, has helped keep new listing numbers low and stopped the market from being flooded with distressed sales.
While the majority of this support was designed to assist existing homeowners, buyers have also benefited from these programs. They have also been further boosted by historically low interest rates, which have pushed their budgets even higher. All of this, combined with relatively low supply, has meant property prices have generally increased throughout the lockdown periods.
During the pandemic, there has also been increased buyer interest in relocating interstate or to a regional area. In fact, regional Australia has been booming throughout 2020 – 2021. The highest number of Australians ever moved from the capitals to regional areas, for jobs, increased allowance to work from home and to escape lockdowns. Recent reports have shown that the top 3 regional growth areas are in Queensland.
Border restrictions put in place during lockdowns have often limited the ability to look for property in their desired location. These buyers have often turned to experienced local real estate professionals to help them find and secure a new home.