Property downturn is around: How will housing market fare?

After the Covid-fuelled extraordinary house price growth on the back of temporary drift to regional areas, temporary slump in listings and increased money supply, Australia’s house prices are set to endure the looming downturn with different regions and states to be affected differently .

The imminent regulatory intervention, end of Covid-19 related government payments, reopening of the states and territories, recovery in international supply chain, falling cost of constructional materials, dropping commodity prices, resumption of international travel, return to the office and shift in the availability of jobs are starting to rebalance, or somewhat reverse what has so far happened over the past 15-month period.

There will be a strong focus from all level of governments on getting people back into the city in the coming months to accelerate the economic recovery.

NSW and Victoria, particularly Sydney and Melbourne will be the biggest winners pulling back the workforce from regional areas, other states and territories, receiving most of the international arrivals, and enjoying the business revival with booming jobs growth. Secondary cities such as Wollongong, Newcastle and Geelong are also expected to fare well with negligible pullback in house prices.

Other regional NSW areas, especially the north from Ballina to Queensland border which saw temporary low supply and highest price surge in the state will suffer most due to the return to the city.

Queensland will be hit hardest, especially regional areas which saw an epic bubble when well-heeled city dwellers and residents returning from NSW and Victoria under the work-from-home arrangements caused a temporary stock (both sale and rental) shortage and high demand.

Brisbane and Gold Coast, and some affordable regional areas such as Toowoomba will likely hold better than areas such as Sunshine Coast where the pandemic has detached property prices from the underlying economic fundamentals (temporary demand-fuelled property boom, low income with no sustainable job market).

Regulatory changes, particularly  focus on curbing investment loans will also affect Queensland most as it has been the primary beneficiary of the recent investor rush to take up the available stock due to lower prices.

Mining towns which have seen a surge in property prices due to the temporary demand and low supply in the world market will also suffer most as the prices are in freefall. This is especially the case for Western Australia.

Western Australia with half of its economy relying on resources, went through a six-year property downturn after the last mining boom ended. The current property boom has also been supported by the iron ore prices which has more than halved in the past months from its peak and is expected to dip further as Brazil and other suppliers are ramping up production amid slowing demand in China. The impact of the global commodity market has this lag effect in flowing down – usually takes a few months to be felt in property prices. Both Perth and regional areas will likely suffer.

Property prices will also be under pressure in Northern Territory after the recent surge but South Australia, Tasmania and ACT will likely hold relatively well.

In addition, the current overvaluation, upcoming election, falling sharemarket,  RBA’s taper plan, lower money supply and hard currency from exports, and geopolitical developments in the region will also weigh on the dwelling prices but overall pullback will likely be gradual in capital cities with growing working populations and job opportunities.

Winners: NSW, Victoria
Lossers: QLD, WA