If the Australian housing market tanks as a result of the coronavirus-induced economic crisis, it will worsen the inequality that rising prices helped to fuel, experts have warned.
Increasingly dire forecasts from economists paint a picture of significant losses in the back-end of 2020, as the consequences of COVID-19 worsen and government stimulus runs out.
But rather that deliver relief for Aussies battling with high rents or locked out of markets due to the long-term boom in prices, a collapse in house prices will hurt.
A trio of urban researchers say rising unemployment poses the biggest threat to housing market stability, with a major downturn likely unless the jobless rate recovers “rapidly”.
“Those who benefit most from a boom are not those who pay the price when it busts, and those harmed by the boom often become even more vulnerable during the bust,” Ilan Wiesel from the University of Melbourne, together with Liss Ralston and Wendy Stone from Swinburne University, wrote in an article for The Conversation.
Recent first homebuyers are those likely to be hit hardest in the event of a market bust, they wrote.
“We estimate 24,000 households are at very high risk because they took out large loans that might soon exceed their home value and also work in sectors with high job losses. Another 135,200 are at high risk and 121,000 are at moderate risk.”
And any price relief for renters as a result of changing market conditions is likely to be very short-lived, they warned.
“Many private renters hope a housing downturn will translate into lower rents and perhaps give them a chance to buy their first home in a more affordable market.
“However, in the longer run, the slowdown in housing construction will create supply shortages, leaving rental vacancies low and rents high.
“Many landlords, mostly ‘mum and dad’ investors, have taken large loans to finance their property investment. They will need to keep rents high to hold on to their investment properties.”
The only good news for some renters is that lower prices might enable them to become homeowners after being locked out of the market during the boom years.
“These households could benefit from a coronavirus housing bust if the market then recovers. Even so, their gains will do little to change the overall trend of rising inequality made worse by the housing downturn.”
And a downturn is not only likely – it’s forecast to be sharp and sustained.
A GRIM OUTLOOK
The forecast for property prices in the coming year and beyond differs depending on who you ask, but all economists agree – there will be declines across the board.
CommSec, the financial advisory arm of the Commonwealth Bank, is expecting a 10 to 20 per cent plunge over the coming six months due to flat economic activity and rising unemployment.
On top of that, a collapse in foreign investment activity and international migration numbers will play a significant role, it said in a May report.
“The usual underlying demand pulse from net overseas migration has evaporated because the border is shut,” the CommSec report said.
“New lending is expected to contract, buyer expectations have adjusted downwards from exuberance to pessimism, rents are likely to fall, auction clearance rates are expected to remain weak and turnover will be lower than usual.
“The net result means that price declines are inevitable.”
source:news.com.au