House prices edge lower in May but 'real test' will come after September, analysts say

Australian house prices are so far holding up amidst the economic downturn caused by coronavirus, but analysts warn the real test will come once bank mortgage holidays end later this year.

CoreLogic's monthly index shows, nationally, prices fell an average of 0.4 per cent, but there was a significant variation across regions.

"There are different fundamentals around the nature of employment and how dependent those markets are on international migration," CoreLogic Australia's head of research Eliza Owen told ABC News.

"Melbourne, for example, is so far leading declines with property values down by 0.9 per cent over the month.

"We're also seeing differentials between the metropolitan areas and regional Australia, where the combined capitals saw value declines of 0.5 per cent over the month while the combined regional areas held steady."

Darwin was the weakest capital city, despite being the first to substantially lift coronavirus-related social distancing restrictions, with prices down 1.6 per cent last month.

Hobart had the strongest monthly price gains of 0.8 per cent, despite seeing one of the steepest falls in rents over the past two months.

Map of Australia showing home price changes in May 2020.
CoreLogic data on the home price changes for Australian capital cities in May 2020.(ABC News: Alistair Kroie)

CBA economist Kristina Clifton also observed a substantial difference between price moves at the top and bottom end of the property market.

"Prices are falling the most for the most expensive homes," she noted.

"The price for the cheapest 25 per cent of properties rose by 0.1 per cent in Sydney and fell by 0.3 per cent in Melbourne."

However, the overall decline has so far been much smaller than most analysts expected, and defying fears that property prices could lose a third of their value in a worst-case economic scenario.

Banks propping up property

Ms Owen said two factors appeared to have held up the market in May.

"I think May was a more positive month for the real estate industry than I would have expected, because sales volumes rebounded about 20 per cent over the month off the back of a lift in consumer sentiment," she said.

But, while transactions were up, total stock for sale on the market was down by about a quarter on where it was this time last year.

However, these mortgage repayment holidays generally only apply for three months, with the option of a further three-month extension at the discretion of the bank, meaning most are scheduled to end around September or October.

"A lot of lending institutions have offered this reprieve on mortgage repayments and I think once those repayment holidays end, if we don't see a reasonable improvement in the labour force, then that will be a real test for the housing market, because that's when we might see more distressed listings coming onto the market," Ms Owen forecast.

Already, CoreLogic data around real estate agent activity is showing a marked increase.

Prior to Easter, activity was 60 per cent lower than at the same time a year ago but by the end of May agent activity was only 8 per cent below a year ago.

Core Logic noted that agent activity on the RP Data platform is highly correlated with the number of new property listings coming on the market with a two week lead, suggesting new listing numbers are set to rise further early in winter, which is usually a seasonally weak time for property listings and sales.

Stimulus likely on the way

Although, Ms Owen does believe that banks will continue to extend as much flexibility as they can afford to, given that it is not in their financial interests to foreclose on a large number of borrowers at once and flood the market with forced property sales.

"Already we are seeing institutions trying to extend interest-only periods or help mortgage holders get onto plans that reduce their borrowing costs," she said.

"The current situation just exacerbates part of the risk in the Australian economy, which is that we have high housing debt."

However, CBA economist Kristina Clifton said that both the Commonwealth and state governments are likely to introduce further policies to stimulate construction and the property market.

"Media reports have suggested that the [Federal] Government will announce a first home buyers grant of at least $20,000 towards newly constructed homes," she noted.

"Both the NSW and Victorian state governments are considering phasing out stamp duty and replacing with a land tax.

"If implemented these initiatives would support the housing market."