COVID lockdowns and the housing market
We’ve all had just about enough of the ol’ lockdown. And as Sydney enters another week, things are feeling a little grim, but the good news is the housing market will keep on keeping on, just in a whole new way. With low vax rates, lockdowns will continue to be the norm for a wee while yet. Let’s look at how lockdowns have affected the markets over the last 15 months.
Auction results have improved with each lockdown
Surprisingly, auction outcomes have gradually become more favourable to sellers throughout the many lockdowns. The evidence is in the auction results, as you can see in the graphs below.
Figures 1 to 4 show the outcomes in Melbourne and Sydney for all auctions collected by CoreLogic under different social distancing conditions and the average weekly volume of auctions through each period.
A few observations can be made from the data.
Firstly, longer social distancing periods resulted in far lower average auction volumes. This is likely due to vendors and agents becoming selective of whether the property is worth being taken to auction. There’s evidence of this too, in the number of properties being passed-in as well as a large number of cancelled or postponed auctions. Across Melbourne, auction volumes were most depleted toward the tail-end of stage 4 restrictions, through September and October 2020. During this time, it was harder to sell because of the rules limiting inspections. The economic downturn didn’t help much either.
Secondly, more properties were withdrawn during lockdowns. As well as lower numbers of properties listed with an auction campaign, a higher portion of properties were withdrawn from auction altogether in periods of lockdown. These figures were somewhat elevated in Sydney during stage 2 restrictions.
Thirdly, there was a higher portion of properties sold prior and sold after auction during lockdown. For Sydney, the proportion of properties sold prior to auction increased from 23.1% over the past 5 years, to 28.0% during stage 2 restrictions, and 35.2% for the two weeks ending 4th of July.
Finally, it appears circuit-breaker lockdowns saw a higher portion of properties sold ‘at’ auction than longer restrictive periods. Across both Melbourne and Sydney, shorter lockdown periods have resulted in a higher portion of properties sell ‘at’ auction, as agencies have adopted and refined online or over-the-phone methods of hosting auctions. While it may have seemed like a very foreign concept at the beginning, buyers are becoming more adept at buying successfully through online formats.
Demand dropped, as did advertised supply.
Throughout each of the lockdowns, sales values have stayed fairly strong, however the transaction activity has been far more volatile with the volumes of sales dropping -33.9% across the country during stage 2 restrictions. This wasn’t just due to the difficulty in purchasing the properties but also the initial economic shock caused by COVID and the general pessimism and uncertainty, at a time when property prices were expected to fall by at least 10% or possibly a third – but that didn’t happen.
Normally a fall in demand would result in greater vendor discounting and a drop in property prices – but in this case advertised supply also fell, with new listings added to the market declined -44.7% through the month of April 2020.
Extended lockdowns, both nationally and across Melbourne, saw very subdued listings activity. It wasn’t until 2021 that new listings added to the market have trended closer to the historic average. Through 2021, as housing demand surged in recovery from COVID-19 lockdowns, CoreLogic observed a greater volume of sales than new listings added to the market. And the result? Low levels of advertised stock.
Housing market values did not crash thanks to institutional response
Another central theme reported throughout the pandemic has been the relative stability of property values. Nationally, values saw a peak-to-trough decline of just -2.1% through 2020, before a recovery trend in October 2020. Of course, there were different price dynamics playing out across capital cities.
In Melbourne where lockdowns hit hard, there was a peak to trough decline in values down to -5.6%. Later, this was recovered though with only pockets of the city where rent has dropped lower than pre-pandemic levels.
Smaller capital cities were barely affected by the pandemic. In fact, they were fuelled by low interest rates. Canberra has continued to hit a fresh record high value every month since September 2019.
The housing market commenced recovery could be attributed to:
• Record low mortgage rates
• An engineered economic downturn that had a swift recovery
• Low listings volumes; and, perhaps most importantly
• Enormous levels of government and institutional support
While there was tremendous support from the governments and banks last year, there hasn’t been strong government and institutional response to the current lockdowns – and this may affect potential new buyers, depending on how long the lockdowns last.