COVID-19 has brought about downside risks for the economy and housing market. A 0.3% decline in March GDP confirmed a technical recession is underway in Australia, total wages paid fell 5.4% between mid-March and early May, and Australian dwelling market values saw the first month-on-month decline since June 2019.
But one surprising sign of stabilising emerged in May. Home sales have risen, with home owners testing the market, and new listings are rising. In fact, buyer demand is outweighing the volume of new listings.
Strong absorption of new listings over May
This absorption can be observed across new and total listings data. CoreLogic counts an advertised property as a ‘new’ listing if it has not previously been seen on the market in the past 72 days. Total listings are the sum of new and re-listed stock for sale on the market. The count of new and total listings are typically reported in rolling 28-day periods.
In the 28-days to 31st of May, new listings rose 22.4% on the previous period, but total listings fell
-2.9%. This means that even as more new stock came onto the market, buyer activity offset the additional stock.
This is reflected in the listings charts below, which show the new listings count over a rolling 28-day period creeping higher, as total listings levels trend slightly lower.
This is an especially important trend to follow at the moment. As Australians face record high levels of housing debt, job and income losses could lead to a rise in urgent or distressed sales. The latest financial stability review outlined that for each percentage point rise in unemployment, there has typically been an 80 basis point rise in the rate of mortgage arrears. If a large volume of distressed properties are listed simultaneously, this could put downward pressure on property values and make it harder to recoup equity from distressed sales.
This is largely why banks have offered ‘repayment holidays’ on mortgage repayments. APRA data suggests 60% of bank loans and advances are in housing, so a decline in property values affects bank profits and capital.
Another way to assess the uptake of new listings is to consider the ratio of sales to new listings. This measure is found by dividing sales volumes by the number of new listings, and has been used as a leading indicator of property price movements.
The sales to new listings ratio for the combined capital cities on a monthly basis is plotted in the chart below.
The ratio increased from 1.1 in April to 1.3 over May, coinciding with an estimated increase in sales volumes of 20.4% across the combined capital cities over the month. This is the highest sales to new listing ratio in at least 10 years, though sales and listings volumes are still at very low levels.
Where is demand coming from?
With the economy severely impacted by COVID-19, it is surprising to see such a strong rebound in transaction activity. But there are a few factors that can explain these numbers.
The first is that the 20.4% jump in sales volumes in May is off a low base. Over April, the number of transactions across the combined capital cities market was estimated to be just 16,115. That is the lowest monthly sales volume since 1991 excluding January results. It is also pales in comparison to the decade average of 24,700 sales per month across these markets. Although a 20.4% uplift is significant, it still only brings sales volumes to an estimated 19,400 over May.
The second is a rise in consumer confidence. The ANZ Roy Morgan weekly consumer confidence index has risen consecutively for the past 9 weeks. At the week ending 31st of May, the index is 50.5% higher than when it bottomed out in late March. In fact, the index is now just 9% lower than when Australia confirmed its first case of coronavirus in January. The easing of social distancing policies and low COVID-19 case numbers in Australia mean people may be feeling more confident about the future of the Australian economy, their personal finances, and property purchases.
Finally, the kind of workers most impacted by COVID-19 are those that are less likely to have mortgage debt. Between the 14th of March and 2nd of May, 27.1% of payroll jobs have been lost across accommodation and food services, and 19.0% of jobs have been lost across arts and recreation. In a previous blog, we noted that this would disproportionately affect renters rather than owner occupiers. Data from the ABS and HILDA suggests the share of households renting that are in food and accommodation services, and are in a more precarious financial situation, is around 40%.
This suggests that for now, conditions have been relatively stable in the housing market because those most impacted by the economic slowdown of COVID-19 may be less likely to have a mortgage obligation. With stability emerging in the property transaction space, it is evident that additional housing stimulus is less urgent among those that can already afford property, and is another case for addressing housing costs for low income earners.