Click on image to view the CoreData COVID-19 Pulse Check Dashboard

Government restrictions on physical open houses and auctions, key elements of the residential property buying process, are likely to be a major drag on the residential property market in a COVID-19 world. 

Indeed, since these measures were announced by the Federal Government in mid-March, there are signs of the resulting slowdown, with reports on falling auction clearance rates, slowing housing value growth rates and falling real estate agent activity and listings (note 1).

The overall property market outlook isn’t too promising either with further falls in prices predicted. CoreData’s COVID-19 Pulse Check survey over the past four weeks reveals that almost two in three (65.5 per cent) consumers believe direct property investments will perform worse in the next quarter. 

However, while the overall property market outlook may be dire, the first home buyer segment looks set to prop up the property market in a post COVID-19 world.

According to the latest ABS Lending Indicators data, the number of owner occupier first home buyer loan commitments in February 2020 is 16.8 per cent higher than in February 2019 in original terms. The value of owner occupier first home buyer loan commitments in February 2020 is also 32.6 per cent higher than in February 2019 in original terms. Furthermore, the first home buyer segment accounted for 31.2 per cent of all owner-occupier commitments (excluding refinancing) in the month, marking its highest share so far, this financial year (note 2).

Source: ABS. Click on chart to enlarge
Source: ABS. Click on chart to enlarge

While these numbers reflected the early days of the COVID-19 outbreak in Australia and weren’t as strong as they were in late 2019, there are reasons to suggest the strength in the first home buyer segment looks set to continue. The recent and anticipated falls in property prices will provide a greater incentive for first home buyers to get in sooner, driven by rational and emotional ‘fear-of-missing-out’ factors, before prices ultimately rise again.

Sellers may also be more willing to negotiate with potential buyers, as they are now unable to sell through physical auctions. There is also likely to be less competition in the market – some investors may be staying away as the six-month eviction moratorium could mean uncertainties on their rental income.

Furthermore, mortgage interest rates are in record low territory, making it more affordable than ever for first home buyers to service a loan. The Federal Government’s First Home Loan Deposit Scheme, on top of the existing State/Territory Government grants, is an added incentive that is likely to continue enticing first home buyers into the market. 

Despite the current doom-and-gloom in the property market, and the world in general, the stars appear to be aligning nicely for first home buyers, and, there may never be a better time for them to achieve the traditional great Australian dream of property ownership.


Notes:

  1. Early Market Indicators Show The First Signs Of A Housing Market Slowdown, CoreLogic.
  2. ABS Lending Indicators, February 2020