There are 2,422 capital city homes set to be auctioned this week, up from the 2,274 auctions held last week. Over the same week one year ago, volumes were lower (1,667).
Both Melbourne and Sydney are set to see an increase in the number of homes taken to auction week-on-week, with Melbourne set to host 1,215 auctions, up only 1.2% on last week (1,201). In Sydney, 907 auctions are scheduled to take place; an expected rise of 18.3% over the week (767).
Across the smaller auction markets, volumes are set to be higher over the week in Brisbane (109), Canberra (77) and Perth (36). While Adelaide (69) and Tasmania (9) will see fewer homes auctioned this week.
What if we held an auction and nobody came? It would never be reported:
While the coronavirus takes global stock markets for a wild ride, it’s left Australia’s sacred cow, its beloved property market, well enough alone.
Take auction clearance rates, one of the market’s leading indicators, for example. Over the weekend they showed the first signs of softening, although haven’t fallen significantly yet.
“The impact so far has been pretty muted. Clearance rates have been down a touch but they’ll still be pretty solid numbers when they’re finalised later this week, probably ending up around 70% in Sydney and 65% in Melbourne,” Domain economist Trent Wiltshire told Business Insider Australia.
“There are fewer people at inspections but it doesn’t seem like the news has flowed through to the property market although there is some risk to the short-term outlook.”
AMP Capital chief economist Shane Oliver has warned capital city clearance rates are certainly headed south.
…“But if contained, things will rebound quite quickly, and that goes for the property market as well.”
We interrupt this program to inject a little reality.
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Our best guess is the shut down will run through October as the first virus wave unleashed by ScoMo containment failure hits and is beaten back. Then a second wave arrives with Winter and can’t be beaten.
Realty about to go “no bid” for six months, opening the possibility of a massive price gap. Martin North sums it well:
Despite the property bulls (who seem to be a bit quiet just now) there are a series of logical reasons why prices will indeed fall from current levels.
First net migration into Australia will stop period. We have been seeing around 300,000 each year, which was one factor supporting demand in some areas.
Second, new property transactions will stall. No one will want to attend an open house, yet alone an auction in the current conditions. Sales transactions have risen more recently, by that just got turned off. How soon will it be before we see zero auctions reported on a Saturday?
Third, property investors, will continue to flee – they already saw rental returns dropping, now no capital growth. Demand from new investors was weak, it will die. They may have to subsidise renters who cannot play rent due to job loss or income decline.
Fourth, existing mortgage holders will face cash flow issues as income stalls. We already have more than 1 million households in cash flow stress, another 200,000 or so are set to join them, in short order. Around one quarter of households have less than one months free cash available if incomes stall.
Fifth, banks will (are) cut back on mortgage lending. With margins already low, experience from Europe suggests it is unprofitable to lend. They will also lift risk underwriting standards. Meaning people if they want to borrow will get a lower available loan. Loan books will likely contain more defaults and higher risks – meaning more capital. Some may choose to shrink their balance sheets as liquidity stalls. Recently first time buyers were getting $420,000 mortgages no problems, with income ratios of 6, 7, 8 times or more. Debt servicing ratios are still high – and servicing is now an issue.
Income multiples often assumes double incomes. If one income stopped that would be a big problem.
Sixth, forced sales will eventually occur though nor immediately. I expect banks to support households in financial stress by loan and interest payment postponements, for a time. But eventually forced sales, at lower than current market values will follow. In addition, given the death rates among older people, more supply could well come on stream as estates are liquidated.
Seventh, States will take a hit from falling stamp duty as transactions slow. They will not be able to reverse this.
Eighth, Government will try various stimulation moved to try to prop up the market – but persuading people to buy now will be like selling seawater on the beach. They may well provide cash support direct to households for mortgage and rent payments – they probably should.
Ninth – the property wealth effect, which was a mirage, is dead. Finally. Until the next bubble starts, which it will, unless policy changes. I will have more to say about that ahead.
Finally, its worth thinking about this. On average, prices are 40% over their fundamental value. So they have a long way to fall.
And debt to GDP ratios are, and will go further off the charts.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
