Property to be sidelined until mid next year

Property to be sidelined until mid next year
Cassidy KnowltonDecember 8, 2020

After a sharp slump in share markets – as we are now seeing – it is natural to wonder what the implications for residential property market might be. 

Will investors rush into property as a safer alternative to shares much as occurred after the 1987 share crash? Or will the deteriorating economic backdrop cause buyers to sit on the sidelines as distressed selling picks up, much as occurred initially around the GFC? 

Our view is that the odds favour the later. As in 2008, the environment today is very different to what see saw after the 1987 share market crash – there is much more economic uncertainty, house prices are percieved as overvalued and affordability is terrible. Investor surveys show that property is almost as out of favour for investors as shares are.

With non-mining parts of the economy already struggling, the global outlook taking a turn for the worst, share markets falling and unemployment likely to start drifting up again, it is likely we will see an increase in the supply of homes on the market over the next few months, particularly at the upper end. This combined with fear of the unknown keeping potential buyers on the sidelines is likely to ensure that the recent softening in house prices will continue into year end.

Eventually the RBA will start to cut interest rates and this should start to help the residential property market from around the middle of next year, but in the meantime its hard to see the property market picking up.

Shane Oliver is chief economist at AMP Capital Investors.

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