Government stimulus and low interest rates prop up declining property market

Property prices have tumbled nationally due to COVID-19, but government stimulus, mortgage deferral schemes and rock bottom interest rates have helped cushion the falls.

Across the combined capitals, house prices have dropped by 2 per cent and unit prices by 2.2 per cent in the three months to June 2020, according to Domain Group data.

On an annual basis, property values were still in positive territory, with houses and units up by 6.6 per cent and 4.5 per cent respectively in the 12 months to June 2020.

Domain senior research analyst, Nicola Powell, said it was the first quarter where COVID-19 impacts were beginning to show, with values rolling back to where they were before the price recovery.

“While most capital cities declined, the falls have been minimal to-date as unprecedented government stimulus, mortgage holidays, low stock levels and record low interest rates shield values from any significant declines, helping to retain stability in the housing market,” Dr Powell said.

She added that stimulus measures and bank support through mortgage deferrals has kept the number of distressed sales low, which may in turn prop up property prices.

Yet the economy’s performance after government support, such as JobKeeper, ends would largely determine the national outlook for prices.

“The risk to prices becomes greater once the stimulus measures cease and we face the fiscal cliff,” Dr Powell said.

How have property prices moved during COVID-19?

Canberra property prices showed the greatest resilience, with houses shooting up by 4.1 per cent in the June quarter despite COVID-19. The national capital’s units fell by 1.3 per cent, the smallest decline for units in the country.

In Sydney, house prices came down by 2 per cent, or $23,000, in the June quarter, while unit prices declined by 1.9 per cent, or $14,000.

Real estate values in the harbour city were picking up pre-pandemic, with houses and units growing by 10.5 per cent and 7.3 per cent respectively. 

“House prices are $110,000 above the early 2019 trough but remain $55,000 below the mid-2017 peak. Unit prices are $50,000 above the mid-2019 trough but remain $52,000 below the mid-2017 peak.” 

Sydney is still the only capital city with median house prices in the million-dollar club.

Melbourne suffered the most among the country’s house market, with prices plunging by 3.5 per cent, or $32,000, in the three months to June. Unit values have held up better than houses, dropping by 1.7 per cent, or about $9,000.

“Prior to this, Melbourne house prices had made a full recovery from the 2017-19 slump. This quarter marks the first fall since early 2019 and is the deepest quarterly fall of all the major capital cities,” Dr Powell said.

She noted that the second lockdown the city is undergoing may stall buyer momentum temporarily.

House and unit prices in the June 2020 quarter

Source: Domain Group.

Is it a good time to buy a property?

While property prices may be falling, home loan rates are at their lowest the market has seen.

The lowest fixed mortgage rate on the RateCity database is 1.99 per cent, from Bank of Us. But this rate is only available to Tasmanian residents. The lender was the first in the market to bring a mortgage rate of less than 2 per cent to the market.

It is also possible to secure a variable rate below 2 per cent, with Loans.com.au offering a 1.99 per cent introductory rate. However, this rate only lasts for 12 months, and the rate will revert to 2.57 per cent after this period end. 

For some, it could be a good time to buy a property if you have a secure income and have a substantial deposit saved up.

Others who may be worried about the ongoing impacts of COVID-19 may want to wait and see before diving into the property market and committing to a 30-year home loan. Some may also want to keep their cash close for emergency purposes as uncertainty grows.

Your best course of action may depend on your financial situation and priorities. It’s best to seek professional financial advice before committing to a home loan.

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