How will COVID-19 affect market SEGMENTS?

This week we have spotted some ‘forecasted’ price drops in the media with claims of some 20-30% likely to impact our markets.

We are not seeing any such signs in our current markets.

There is no doubt that COVID-19 will have an impact on segments of our market, but it is important for us to understand the following points;

• Our government, our prudential regulator (APRA), our treasury and our banks are all aligned when it comes to property price falls. They don’t want prices to fall. Significant price falls are in nobody’s best interests and this is a key reason why some responsible lending guidelines have been relaxed, and why lenders are offering repayment holidays to affected households.
• With our interest rates now sitting at all time lows, many property investor’s portfolio’s are now cashflow-neutral, or even cashflow-positive. For those who have held property for more than ten years, there is a strong chance that their overall cashflow position is now positive due to low interest rates.

• Unemployment is forecasted to double, (to a possible double-digit level). While this is horrible for many, we have to remember the other side of the coin; 90% employment. While not all employed persons are in their desired level of employment, (ie. under-employment or casualised employment is still an issue), the reality is that there are many households who are still in a position to borrow money and buy property.
• The JobKeeper initiative has made a critical difference to the long term viability of small business for so many, and while many employees are currently under-employed, this won’t be a long term scenario for all. When our lockdown measures ease and business recovery starts, employment too will increase.
• While we are all locked up at home, we are spending less.

When COVID-19 lockdown measures first struck, our active client list went from twenty to nine, almost overnight. Buyers were worried that things could get much worse, and some wondered if their buying power could increase as asset prices fell. Others didn’t necessarily subscribe to the view that price falls would ensue, but they were anxious enough to put their search on hold. We also had some client who were fearful of job loss/reduced hours, and they justifiably decided to wait it out until they had more certainty about their income.

It is important to note that human behaviour is typically to apply caution when outcomes are fearful or unknown.

Interestingly, we also had a couple of clients who decided to buy counter to the market. We call this behaviour contrarian. Last year, following our Federal election win and property market bounce-back, we helped a few contrarian buyers purchase advantageously. Whether this COVID-19 slowdown exhibits a fast bounce-back like 2019’s, or whether it is a slower recovery, one thing that we do know is that there will be a recovery. The question is only when.

Timing a market is a very difficult thing to do; even for property professionals who are in tune with every change in dynamic at their coalface.

We are observing interesting results at present, and there is certainly a correlation between price falls and dwelling types/price points.

It goes without saying that some dwelling types and price points will be more vulnerable to downturns than others.

Higher price-points, (ie. top quartile) are experiencing more days on market, and we have witnessed some sharp discounting for resultant prices. It is fair to say that any vendors who had previously purchased an upgrade or downsize home pre-COVID-19 would have felt very anxious about the certainty of inspections and their chances of finding a suitable buyer.

In these situations, we have seen stronger price falls, but not at a 20% magnitude. Ten percent would be a reasonable price fall estimate in circumstances like this.

With the devastation caused in our travel industry, many AirBnB owners would be also feeling the pain of our lockdown measures, and we can expect that many impacted lifestyle properties will be sold in the coming months. Coastal and lifestyle properties are always the first to go if an owner feels the need to liquidate a holding.

People will sell a holiday house before they will sell a home.

Investor activity has been fascinating to observe and segment. Lower price point properties that exhibit higher appraised rental returns are seen as a ‘safer’ investment option for those who are mindful of employment changes or a reduction in income. A cashflow-positive property can be considered a ‘set and forget’ investment option, and this property below is an example of a lower price point/higher yielding option in a quality area that we secured for a client last week.

Competition in our regions continues to be strong, and we believe that they will be more insulated from price falls than higher priced stock in major metro areas and aspirational coastal/lifestyle locations.

Days on market, firm prices, auction clearance rates and numbers of buyers per property are all valuable indicators of market vulnerability, and it’s vital to note that our regions are exhibiting firm demand, short days on market, and strong competitive numbers despite our difficult economic times.

Family homes in quality, in-demand, locations will continue to experience buyer demand. Take this beautiful property in Oakleigh, (below).

The auction was held via Zoom and ten attendees logged on for the auction. The bidding was competitive and the property sold under the hammer to our clients; two lovely homeowners.

Our Buyer’s Advocate online chat was buzzing yesterday with industry colleagues sharing their trials and tribulations with each other. What was really interesting was the increase in competitive buyer activity when contrasted to past weeks.

We have experienced stronger prospective client enquiry in this past week, (than contrasted to previous weeks) and many buyers have made it clear that they are now awaiting a sign of market recovery.

We know that green shoots go hand in hand with buyer sentiment.

The hardest part is picking the bottom of the market, but smart buyers should be thinking about market segments, and identifying those which present strong opportunity.