Why Coronavirus won’t see Australian house prices in â€"freefall”

It is impossible to categorically declare how far property prices will fall due to COVID-19, but it’s important to remember the kind of situation we’re in, which is a health crisis resulting in productivity challenges. 

It’s understandable that many Australians expect to see the market behave as it did during previous economic downturns such as the Global Financial Crisis in 2007, which was a financial and demand shock.

House prices will likely fall in some areas – but this won’t be uniform across the country. Picture: Getty.

Unlike now, previous downturns in Australia have primarily been financially-led, which is the significant differentiating factor. In light of that, there are a number of reasons why Australians shouldn’t expect to see house prices in freefall.

The banks are a pillar of support

Compared to a financial crisis, the coronavirus pandemic will be short-lived, and Australia’s finance system has been equipped to handle non-performing loans and offer mortgage payment deferrals – at least in the short-term.

The Reserve Bank of Australia is providing $90 billion to the banks at a rate of 0.25 per cent – in line with the record low cash rate – to ensure a cheap line of credit is available throughout the crisis. The RBA will fund the banks at that low rate over three years, and provide additional funding if the banks increase lending to small and medium-sized businesses.

The Australians Banking Association has mandated six month loan deferrals for virus-hit small to medium-sized businesses to ensure they can stay on track. The Big Four banks and some other financial institutions are offering up to six month loan holidays for their home loan customers. 

These measures will help to hold off distressed sales that would otherwise mount far more quickly. House prices will fall in the short-term because of decreasing demand, but don’t expect to see them nose-dive, which is what would happen if banks were also distressed.

Unemployment will only hit some sectors

Job loss is the biggest driver of how a community fares when we look at a local level. In the early 1990s, Melbourne’s house prices were decimated following sharp rises in unemployment. At the same time, the Gold Coast experienced house price increases as a result of migration from southern states. During the Global Financial Crisis, house prices in Perth surged off the back of the mining boom while white collar finance job losses hit premium parts of Sydney.

This time last year, the Financial Services Royal Commission and federal election uncertainty significantly impacted Sydney and Melbourne prices, while Hobart prices soared. In fact, there has been an increase in search activity across the board on the Buy section of realestate.com.au compared to the same period last year, despite the virus chaos. However, it is still down from its peak in February. 

We are already seeing evidence of how the COVID-19 crisis is pushing up the rate of unemployment, but this is polarised in specific sectors. Tourism, entertainment and hospitality sectors have already shutdown and we are seeing the fallout on realestate.com.au with rising rental listings.


Hobart’s tourism economy will likely suffer a deep impact from COVID-19 due to Tasmania’s border closures. Image: Getty.

Export education, particularly in Melbourne, has really felt the blow with the introduction of travel restrictions and a dramatic reduction in international students. Similarly, Tasmania is likely to be less susceptible to the impacts of COVID-19 now that its boarders are closed, but Hobart, which is highly dependent on tourism, entertainment and education for its economic growth will feel the downturn.

In this scenario, it is highly likely that this slowdown will flow through to property prices.

Some sectors will experience growth

Many sectors are facing really tough times but there will be others that experience growth.  Quite obviously, employment in health services will grow in the short-term, but longer-term, there is likely to be increased investment in medical research, hospitals and medical centres.

Government employment will also grow; employment in Centrelink, the Australian Taxation Office and Department of Health will increase immediately. The ultimate government market that can expect to benefit? Canberra. Already we are seeing quite different search behaviour in Canberra compared to the rest of Australia; search activity increased in March from buyers, renters and even for new developments.

The one market that may again have a post-Global-Financial-Crisis-style silver lining is Perth. Australia’s Department of Industry, Science, Energy, and Resources has assumed that almost all Chinese workplaces will be fully operational by mid-year.

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