If we look at previous economic downturns, such as the 1991 recession or the Global Financial Crisis in 2007, Australian property certainly fared better than other sectors.
However, it was not immune to the downturn and hardship, and it is unlikely to be immune this time.
Consumer Confidence is a Massive Influencer
Markets thrive on confidence and declines when it diminishes. This is evident through what has happened with share and crypto markets and around the world.
Australian consumers’ confidence fell by 27.8 per cent last week, according to the latest ANZ-Roy Morgan Consumer Confidence Rating, bringing it to a 30-year low. Confidence is now 17% below the lowest point seen during the GFC in October 2008. This low level of consumer confidence will eventually make a mark on the residential property market.
The time-consuming nature of buying and selling property means the market doesn’t respond to a fall in confidence as rapidly as the share market does.
Property Prices Could React
The broader economy is mostly faced with low confidence because of widespread health concerns, the shut down of public venues and concerns about job security.
As a result, the buying and selling of properties might not be a high priority right now, which could lead to a fall in demand for properties in the near future.
This doesn’t necessarily mean we will see a significant and rapid fall in prices, although there is likely to be a reduction in turnover.
Lower demand, reduced turnover and potentially lower prices will be a challenge for the market, but given we are dealing with a virus pandemic and not a global financial crisis, the hardship will likely be short-lived.
There’s Light at the End of the Coronavirus Tunnel
Once COVID-19 is under control, the housing market is likely to be buoyed by a combination of record-low mortgage rates and the prospect that they will remain at these levels for some time.
In addition to this, a slowdown in property transactions in the coming months will likely create more pent-up demand for housing, which will burst once consumer confidence begins to sustainably improve and the housing market commences its recovery.
Overall, these factors should see a fairly swift rebound in property demand once the COVID-19 crisis has passed.