House prices in Australian cities go their separate ways

Dwelling prices in Australia’s state capital cities have diverged since social distancing and other restrictions were first introduced in late March to arrest the COVID-19 outbreak.

Melbourne property values have fallen 3.5 per cent in the past four months, while house prices in the Australian Capital Territory or Canberra have risen 1.3 per cent, said property data company CoreLogic in a report this week.

Perth has seen house values decline 2 per cent over the March-July period, and is second to Melbourne in terms of price falls.

Sydney experienced a 1.7 per cent fall in its house prices, while Brisbane property values dropped 0.6 per cent, and Darwin’s were steady from March to July.

Adelaide saw a small rise in its house prices in the four-month period, as did Hobart, both under 1 per cent.

‘Economic shock’ from closed borders

The Victorian capital went to stage four social restrictions for the Coronavirus on Sunday, introducing an 8pm curfew and restricting non-essential workers to their homes in daytime except for essential trips for food shopping and exercise.

The stage four social restrictions are expected to last for six weeks.

CoreLogic identified two factors at play in Melbourne’s property market.

Firstly, Melbourne’s housing market has traditionally experienced volatile growth rates, and the current decline has occurred after a dramatic upswing.

“Structurally, there has been an enormous demand shock to the Melbourne property market with the closure of international borders, where Melbourne previously had the highest level of net overseas migration of the capital city markets,” CoreLogic said.

Victoria has experienced the largest decline in its jobs market of any state in Australia at 7.3 per cent between March 11 and July 11, according to Australian Bureau of Statistics data.

The Victorian capital went to stage four restrictions for the Coronavirus on Sunday, introducing an 8pm curfew and restricting non-essential workers to their homes in daytime except for essential trips for food shopping and exercise.

The stage four social restrictions are expected to last for six weeks.

Steep rise in COVID cases a concern

Australia moved to stage two restrictions on March 25, as the federal government imposed strict social distancing rules on the community and ordered most shops and public venues to close.

Victoria including Melbourne has had the most cases to date of COVID-19 of any Australian state at 13,035, which increased by 700 overnight, while NSW including Sydney has had 3,832 cases and added only 11 overnight.

CoreLogic expressed concern in its report about the steep rise in COVID-19 cases in Melbourne and Victoria which account for one-quarter of Australia’s economic output, saying the city’s stage four restrictions had dampened consumer and business sentiment.

A further test to Australia’s housing market is coming with the reduction in federal government spending from October, it said.

“The expiry of mortgage repayment holidays is another downside factor for the market,” CoreLogic said.

Restrictions imposed earlier in other Australian cities such as Canberra and Perth to curb the Coronavirus have mostly been eased.

Canberra’s houses market reflects lower interest rates

Canberra’s 1.3 per cent rise in its property values since over the March-July period reflects the lower interest rate environment in Australia which is conducive to a rising property market.

“Reserve Bank of Australia research has noted that reductions in the cash rate typically increase property values over time, because debt becomes cheaper and purchasing capacity increases,” CoreLogic said.

Adelaide’s small rise in house price values since March means the city has bucked a recent trend.

Melbourne’s housing market has declined the most of Australian cities since March. Pic: CoreLogic

“While Adelaide has seen modest growth during the pandemic, this has not traditionally been a market with strong capital growth returns,” CoreLogic said.