Negative impacts of COVID-19 on real estate to be short-term: Hotspotting's Terry Ryder

Negative impacts of COVID-19 on real estate to be short-term: Hotspotting's Terry Ryder
Negative impacts of COVID-19 on real estate to be short-term: Hotspotting's Terry Ryder

EXPERT OBSERVER

The virus crisis creates unique challenges for everyone in real estate, including those of us who research, analyse and write reports. 

Every quarter I write The Price Predictor Index, which analyses key data like sales activity and price trends for every suburb and town in Australia. Researching and writing that report stretches typically across two months – and in the past two months the world has changed.

In some ways, the world is forever changed but the fundamentals underpinning Australia will not change. Areas with strong and diverse economies, growing populations, good existing infrastructure and investment in new infrastructure, will continue to be good places to own real estate. The underlying principles of supply and demand will remain intact on the other side of the shutdown.

The Autumn 2020 edition of the PPI is based on data that pre-dates the full impact of the virus crisis on property markets (remembering that the figures from both CoreLogic and SQM Research show little negative impact during March) but it shows that Australia was full of strong markets going into the crisis – and gives a clue to life on the other side.

The report identified growth markets right across Australia, finding uplift in places you don’t hear much about in mainstream media, as well as in the usual places. Based on our analysis of sales activity, the leading market jurisdictions were Regional New South Wales and Adelaide, ahead of Melbourne and Sydney. 

Other strong performers, in terms of the number of locations with rising sales activity, were Regional Queensland, Perth, Brisbane and Canberra. Regional South Australia was a surprise stand-out.

Our Autumn 2020 survey identified 77 growth markets in Regional NSW, while Adelaide and Melbourne both had 69 suburbs with rising momentum - but we rate Adelaide higher because it had the same number of growth market as Melbourne despite being a much smaller city. 

The survey reveals that both Sydney and Melbourne were well into growth phases prior to the onset of the coronavirus period, as part of a major upward movement in most market jurisdictions across Australia. 

Exceptions included the two previous national leaders, Regional Victoria and Hobart, which were both past the peaks of their recent upward cycles. We would expect price growth in those plateau-ing markets to level off - even without the additional impact created by the virus.

The report underlines some of the key principles of real estate which won’t change amid the current uncertainty. It demonstrates that price movements are preceded by significant changes in sales activity - and that prices take time to react to those trends. 

Our quarterly analysis shows that areas which experience a steady uplift in sales volumes will have increases in prices - eventually. And locations where sales activity is declining will eventually see price growth cease, or price decline. 

Both Sydney and Melbourne had falling prices in 2018 and early 2019, and this was preceded by a steady fall-off in sales volumes in the 12-18 months before values began their descent. Most researchers measure market peaks by price behaviour but at Hotspotting we measure it by analysing sales volumes – which allows predictions of whether prices will rise or fall in the near future.

The report also provides further evidence of the folly of generalisation about property markets. Media often discusses Australia as a single market, with forecasts of the likely movement in “Australian house prices”. It’s a ludicrous concept, but that’s what they do, fed by press releases from economists who discuss real estate as a single national entity. 

It is equally foolish to discuss a city as a single market. Our Autumn 2020 survey shows that while there was a noteworthy recovery under way in both Sydney and Melbourne in late 2019 and early 2020, the uplift was not occurring evenly across those very large metro areas. 

In Sydney, the revival was seen most vividly in upmarket areas like the Northern Beaches and the Inner West. The outer ring locations remained relatively quiet (with the notable exception of the Blacktown LGA). 

And while Sydney overall was the strongest we had recorded in any of our quarterly surveys in the past five years, there remained 12 suburbs we classified as declining markets and another 12 we rated as danger markets. The latter were all locations dominated by apartments, where extensive recent new development had created over-supply, without any evidence as yet of an increase in demand or prices. 

In Melbourne, we saw some similar patterns, with considerable uplift in the top end suburbs and also in Middle Melbourne - strong middle-ring locations like the Whitehorse LGA - but relatively little response in many of the outer ring areas. Melbourne still had 16 suburbs classified as declining markets, but no danger markets.

Equally, there can be stark contrasts in the performance of suburbs within a single local government area. The City Of Sydney LGA had five rising, 11 plateau, one danger and three declining markets - all those contrasting fortunes within one municipality, covering just 25 square kilometres of inner-city Sydney. 

Real estate markets are primarily driven by local events, even though national factors can impact sometimes. And we’ll find out how much when we see the data for April and May.

I continue to expect the negative impacts from the virus crisis to be short-term – and that, when we’re through this bizarre period in the life of the nation, the fundamentals will still apply.

Terry Ryder is the founder of hotspotting.com.au

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Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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Terry Ryder COVID-19

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