Current Economic Conditions and A Forecast for Next Financial Year
As we head into a new financial year, we thought it would be an opportune time to once again call upon Domain Group economist, Trent Wiltshire, for his valuable insights into the economic impacts of the COVID-19 pandemic and the shape of the market recovery.
As we head into a new financial year, we thought it would be an opportune time to once again call upon Domain Group economist, Trent Wiltshire, for his valuable insights into the economic impacts of the COVID-19 pandemic and the shape of the market recovery. At the Domain Group, Trent focuses on the property market, housing policy and the broader macro-economy. He was formerly an economist with the Reserve Bank and the Grattan Institute.
How is consumer confidence and sentiment about property tracking?
TW: There has been a big rebound in consumer confidence after it fell dramatically in April. But confidence is still below where it was pre-COVID. Buyer confidence has rebounded rapidly over the past few months. There was a substantial rebound in people thinking that it is a good time to buy in May and June, and also a small increase in people’s house price expectations, according to the Westpac-Melbourne Institute consumer sentiment survey. While people think it might be a good time to buy, there is no rush as they think prices may fall a bit further.
How are house prices and clearance rates at the moment and where are you expecting them to be later in the year?
TW: Clearance rates have been around 55 per cent in Melbourne over the past month. Rates in this range typically align with flat or modestly declining prices. Auction numbers are well-below average in Melbourne but are trending up. We have been seeing a definite increase in traffic on the Domain website. Listings views and engagement have increased substantially since the low point in late March.
Is the unemployment rate likely to keep increasing and will that affect the property market in our areas?
TW: The unemployment rate has hopefully peaked and will start to fall, albeit slowly, as the economy recovers. There will still be many people underemployed and unemployed for years to come. But the biggest risk to unemployment numbers and the economic recovery in general is a ‘second wave’ of COVID-19 infections.
Do you think there will be mortgage stress at the higher end of the property market?
TW: No, higher income people tend to have more savings and more equity, and generally have lower levels of mortgage stress. But high income earners who have lost their job will be under pressure if they have no mortgage buffer.
Will the declining immigration rates have an impact on the property market?
TW: The decline in immigration is already weighing on the Melbourne property market, particularly in the inner city. Melbourne and Sydney are most exposed to the fall in migration. Fewer migrants, particularly international students have pushed up vacancy rates and lowered rents. If, however, Australia’s COVID-19 infection numbers remain very low, and the economy performs better than comparable countries, this will make Australia an attractive destination for skilled migrants due to work opportunities as well as from a lifestyle and health perspective. International student numbers may also rebound faster than initially expected, with pilot programs to bring students to Australia already underway.
How will the recent setback in Victoria’s virus numbers affect the recovery?
TW: A ‘second wave’ of COVID-19 infections is the biggest risk to the property market recovery. It will slow the economic recovery and will hurt confidence. The government has been cautious about easing restrictions, which is the right thing to do to set us up for longer term growth.
How do you see the property market travelling in the next financial year?
TW: The most likely scenario is modest price falls, and transaction activity remaining sluggish but picking-up from the current low levels. There are two clear downside risks to the market. A ‘second wave’ of COVID-19 infections will slow the economic recovery and will weigh on the property market. The possible end of government financial assistance and mortgage deferrals in September is also a clear risk. But the government would be foolish to withdraw support too rapidly so will likely continue to provide more targeted support, and banks have indicated they will try to avoid forcing people to sell.
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