Here we are, only days away from a form of freedom. What a journey. Bearable for some but overwhelmingly difficult for most. Where has this left the economy and the property market?
The economy suffered a 7% retraction in the 3 months to June however it is expected to grow in the September quarter shaking off the COVID recession stigma. Unemployment turned the corner at 8% from all reports and is on its way down. Interest rates are at their lowest ever at 0.1%. But why cut rates when all it does is redistribute wealth from lenders to borrowers? Overwhelming dialogue suggests reducing rates is grim for self-funded retirees. This could force these investors into equities which in turn creates risk.
Despite a fall in the property market experts say the worst may be over and dire predictions of a COVID-19 induced crash appear an overreaction. The darker scenario of a house price crash has now been averted, according to Louis Christopher MD of SQM Research. Countless predictions of a crash causing a 30% fall has not happened. The resilience of the market continues to surprise me. Two of the four banks are still reporting that the market is due for a nosedive in the order of 10-33% over the coming years. I cannot concur.
From my prospective the property market in Melbourne and the Regional areas is in good shape. Melbourne Metropolitan property prices have retracted less than 4% since February. Melbourne’s overall house median stayed flat for the September quarter but was up 1.6% for the year. Obviously, the heavy lifting for the increase in growth transpired in the latter months of last year and earlier this year. Apartments and units followed a similar path but not as gallant. Unfortunately, there will be an oversupply. Auction clearance rates continue to hover around 70% and I see this as being a regular pattern. Net migration, unemployment and weak rental markets will certainly affect the way forward but I believe we are out of the woods. Victoria may not yet be fully “open for business” but the initial signs are positive.
Higher prices from a supply shortage could be cancelled out by the weak population growth. Although I feel that the renewed interest from expats returning to Victoria now or in the future will take up much of this slack. If there is greater unemployment, there may be some marginal forced selling which could temper price growth.
Suburbs such as Hawthorn, Collingwood and South Yarra have witnessed solid growth in the year up to the September quarter and have shown increases of 30%. Listings of trophy properties are also on the rise throughout Victoria which suggests these vendors are confident the market is in a good space.
Stay safe and well,
Michael Ramsay
Principal
The Advocates