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What house prices did in the global financial crisis, and why it’s different now

What house prices did in the global financial crisis, and why it’s different now
Homebuyers hoping recent falls in the Australian sharemarket will translate into a drop in property prices could be disappointed, if history is any guide, given house prices rose after the global financial crisis in 2008.

But economists also warn the economic situation now is different from the 2008 crisis, and today’s ultra-low interest rates are likely to be a bigger driver of the property market than share-price movements.

The global spread of coronavirus has raised fears for the health of the Australian economy as the tourism and education sectors take a hit, with investors selling off local shares. Monday’s fall was the worst since the GFC and the benchmark S&P/ASX 200 sharemarket index is 17.4 per cent lower than its February peak, despite a Tuesday afternoon rally that saw a 3.1 per cent daily lift.

The path of interest rates offers a clue to previous housing market activity in times of economic uncertainty.

Before the global financial crisis, interest rates were rising in a bid to control strong inflation and as mortgages got more expensive, housing prices were falling.

The national median house price began to slow down in the March 2008 quarter, when it rose only 0.8 per cent compared with a price increase of 3.7 per cent in the previous quarter.

In the June quarter it fell 1.4 per cent, before falling another 2.1 per cent in the three months to September of that year.

In that time, the Reserve Bank of Australia raised interest rates thrice, reaching 7.25 per cent and holding at that level until just before the crisis hit in mid-September 2008.

As the central bank slashed interest rates to contain the emerging crisis – falling to 3 per cent by April 2009 – house prices started to pick up again.

In the March 2009 quarter, the national median reversed its falls to edge up by 0.1 per cent, before jumping 3.5 per cent in the June quarter, another 3.9 per cent in September and a strong 4.6 per cent in the three months to December 2009.

Ahead of the COVID-19-sparked share sell-off, the tables have turned as the property market in major capital cities – such as Sydney and Melbourne – has been recording remarkable house price growth while the Reserve Bank continues to slash interest rates, reaching an ultra low of 0.5 per cent as late as last week.

Australia’s median house price jumped 4.2 per cent in the December 2019 quarter to $809,349, and is 5.5 per cent higher than a year earlier.

Domain economist Trent Wiltshire said the current housing market will be affected in a completely different way from the global financial crisis should the economic situation go awry.

“It’s a very different shock. The GFC was a financial and demand shock whereas the coronavirus is a supply side shock, meaning supply chains are affected, people can’t work,” Mr Wiltshire said.

He said it was not yet clear how big an impact the coronavirus will have on the broader economy and, along with it, the housing market.

“If the coronavirus leads to a huge economic slowdown and lots of quarantining and unemployment rising then that would probably contribute to prices falling and turnover slowing dramatically.”

He said for the time being most buyers and sellers were not worried.

He said the government’s surplus should be abandoned and the focus should be saving the economy and boosting jobs.

Reserve Bank of Australia official cash rate


SQM research managing director Louis Christopher said rates were being raised before the GFC for fear of the economy overheating.

“It’s definitely different this time round in that the market was rising into this crisis,” Mr Christopher said.

“[Housing] markets started to stall in early 2008 and was falling going into the GFC but then bottomed out in the first quarter of 2009, following the aggressive rate cuts. Then, the market took off.”

He said Australia’s current property markets were “arguably still strong up until the last weekend”.

Mr Christopher said while there was potential for continued price growth, there was a lot of fear in the community.

“The stock market crash has not helped … the concern is if we were to see schools closed en masse, large public gatherings [auctions] closed en masse and we end up where Italy is at the moment the housing market will stop in its tracks no matter what rate cut we have.”

“If the panic settles down a little bit the [recent] rate cut and potential other rate cuts will stimulate the market.”

NAB group chief economist Alan Oster was more optimistic about the housing market.

“You had a global meltdown [in 2008] and now you’ve got a recovery so it’s very different,” Mr Oster said. “If you’re looking peak to trough falls both Sydney and Melbourne are almost a point or two from the peak.”

He said NAB’s forecast remains unchanged with house prices expected to rise 0.5 per cent every month, reaching around 7.5 per cent growth in Sydney and Melbourne.

“If the virus is still around by the end of the year then you will have an economic impact … but that’s not our forecast.”




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‘Absolutely inundated’: Lack of stock drives Queensland interest

‘Absolutely inundated’ Lack of stock drives Queensland interest

As open-home restrictions begin to lift, a Brisbane agency has reported huge interest from first home buyers clamouring to get onto the property ladder despite COVID-19.

Coronis Agency has reported that it had more than 80 potential buyers attend the first scheduled open home of an Archerfield property.

The three-bedroom, two-bathroom property only hit the market last Thursday and received more than 56 phone and email enquiries within 48 hours.

Director Anthony Hunt said the agency was “absolutely inundated with buyer enquiries within 30 minutes of the property going live, with many buyers asking to schedule a private inspection on the Thursday night or Friday as they were eager to beat the rush on Saturday”.

“In the end, I opened the property up on Friday afternoon and had nine groups of buyers turn up purely from responding to their calls and emails,” he explained.

He added that at the Saturday open home, which was the first advertised inspection, “it took more than an hour to get everyone through the property due to the social distancing restrictions, but on the whole, everyone was really understanding and willing to wait their turn”.

Mr Hunt said the general feedback he received from most parties is that “they want to buy something right now, despite everything going on with COVID-19”.

“Many of them are first home buyers with pre-approval who are looking to get their foot on the property ladder and aren’t fazed about going out in public to attend open homes,” he said.

The director believes that what they’re more concerned about is the lack of properties to choose from and how quickly properties are selling at the moment.

By Saturday afternoon, Mr Hunt said he had received four offers and it was under contract by Saturday night for a price that exceeded the seller’s expectations, “so they’re very happy”.

While 140 Granard Road was “beautifully presented”, the agent expressed the opinion that the main reason it was so popular with buyers was because it offered “great value for money in a suburb only 15km from Brisbane CBD”.

He iterated that buyers are willing to look outside of their desired suburb to purchase the right property.

His message to those who are considering holding off on selling? Don’t wait.

“In the past week, the Coronis sales team has received more than 1,000 buyer enquiries, and from that, 550-plus groups attended an open home on the weekend, so there is no doubt about it — buyers have a strong appetite to purchase now, they just need more options to choose from,” he concluded.




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Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

House prices are tipped to fall by 11 per cent over the next three years as the COVID-related economic downturn bites, and for one group of Australian homeowners, it could not come at a worse time.

There are an estimated 730,000 investors, many of whom are self-funded retirees or people planning for retirement, who have taken out interest-only bank loans in the belief property was a safe bet.

Coronavirus has already delivered challenges, including rent arrears and the prospect of losing their tenants altogether.

But now these private landlords are facing big hikes in their monthly bank repayments as they switch from interest-only to paying off the principal of their loans as well.

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (2)

Max Green is one of many who has been trying to negotiate with the banks for an extension to the interest-only period of his loans.

The 69-year-old and his partner have bought two properties — one in Brisbane, the other in Perth — in the past 10 years to help fund their retirement.

But the value of the Brisbane property has flatlined and the Perth property, a unit in the city’s outer suburbs, has plummeted from $425,000 in 2016 to $300,000 today, according to a recent valuation.

“The intent was … to provide us with some equity growth in the properties, which would then assist us in the future once I had retired,” Mr Green said.

“We had been advised that we would be able to extend the interest-only period.”

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (3)

Instead, the couple face paying an additional $1,900 a month from July as they begin to pay off both the principal and interest on their loans.

Mr Green said he still enjoyed his work as a project manager at WA’s Water Corporation, but conceded his retirement ambitions had not gone to plan.

He said he would now be forced to either keep working beyond 70, dip into the couple’s superannuation to pay the banks, or sell at a loss.

Investors brace for massive losses

Others with similar investment plans have already decided to cut their losses and are now facing negative equity as a result — where their home is worth less than the amount they owe.

Wayne Grimes, 50, said he couldn’t help but laugh when he considered the price he would likely now get for his luxury investment unit.

“I’m laughing because it is just ridiculous,” he said.




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How COVID-19 has impacted tourism hotspots

How COVID-19 has impacted tourism hotspots

New research has revealed the impact COVID-19 restrictions have had on Queensland’s tourism property markets.

The Palaszczuk government’s mandatory COVID-19 restrictions went live from 20 March 2020, with knock-on effects to the state’s property market.

However, despite the perceived effects, the REIQ said the sunshine coast capital – Brisbane – has reported a relatively stable vacancy rate of 2.44 per cent for the last quarter.

But how has this translated to tourism hotspots?

Gold Coast

According to the REIQ, this quarter’s rental vacancy data provides a peek at the initial impacts of the coronavirus pandemic across popular tourism hotspots in particular.

“The Gold Coast saw an end-of-summer sharp spike result in a 1.2 per cent rise to 3 per cent (with only a 0.4 per cent increase in the Scenic Rim region).

“Up the coastline and it’s not so different around the Bay Islands district where the archipelago average soared by 2.7 per cent to a vacancy rate of 4.3 per cent (making up part of the state’s 10 per cent weakest regions).

North of Brisbane

When it comes to areas slightly north of Brisbane, the REIQ noted that most areas have remained stable with little movement either way.

“For example, Caboolture saw a drop in vacancies (-0.6 per cent to 0.8 per cent) while Redcliffe saw a marginal rise of 0.1 per cent to level out still within tight vacancy range at 2 per cent,” REIQ said.

“Further north and the Sunshine Coast hasn’t offered up any side effects from COVID-19 as of yet, with a 0.2 per cent drop in vacancy rates across the region to 1.4 per cent.

“Even inland across the majestic hinterland region the average vacancy rate reflected a 0.8 per cent decrease to 1.5 per cent.”


There’s some “unmistakeable movement upward” when it comes to areas back along the coastline, according to the REIQ.

“Early tremors of COVID-19 [are] attributable to those results recorded in Noosa (+1.3 per cent to 3.6 per cent) and Fraser Coast (+1.4 per cent to 3.1 per cent) which includes Hervey Bay (+2.4 per cent to 4.3 per cent),” it said.

“Drive a few hours north and more stable yet tight vacancy rates become the norm once more from Bundaberg (+0.9 per cent to 2.4 per cent) through to Rockhampton (-0.3 per cent to 1.3 per cent).

“However, the outlier here is Gladstone. With mining and infrastructure projects on the go, demand for trades has boomed – with vacancy results reflecting rental demand by a staggering 2.5 per cent to a record low of 1.6 per cent for the region.”

The REIQ noted Mackay represents the only area across Queensland that’s remained unchanged over the quarter (2.5 per cent).

Far North Queensland

Townsville remained relatively unscathed with vacancy rates fairly stable (+0.8 per cent to 2.9 per cent), according to the REIQ.

Meanwhile, Mount Isa saw a 1.1 per cent drop to 2.5 per cent, proving the state’s largest township maintained a healthy rental market in the first quarter of 2020.

“Unfortunately, the same couldn’t be said for Cairns,” REIQ said.

“As the gateway to the Great Barrier Reef, Port Douglas and the Daintree Rainforest, the tourism-driven region closed out the quarter with a 1.8 per cent increase to 3.5 per cent rental vacancies – teetering on the edge of weak market conditions after experiencing record-low vacancies over the last 12 months.”

Commenting further on the results, REIQ CEO Antonia Mercorella said:

“Any further surges in vacant properties across Queensland’s tourism regions are likely to be addressed by future tourism-focused initiatives to boost domestic holidaymakers.”

“It’s an optimistic start to the year. The next quarter will reveal more about the true impact of COVID-19 on the Queensland rental market.”

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