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HOME OPEN: Holding pattern

11:43am August 27 2020

Westpac senior economist Matthew Hassan discusses the outlook for the housing market. (Josh Wall) 

Six months or so into the COVID-19 pandemic, the exact fallout for the housing market remains unclear as a range of measures dampen and delay the effects. 

Government stimulus such as JobKeeper, bank repayment deferrals, early access to superannuation and rental relief are all supporting the economy amid restrictions to contain the virus, which is obviously a good thing – albeit making forecasting particularly difficult. 

Like the economy more broadly, the ultimate impact on the housing market will be largely determined by the course of the virus. 

As our latest Housing Pulse explores, recent virus developments, including Stage 4 lockdown in Melbourne, have already delivered another deep shock to consumer confidence. More positively, prospects look good for reining in Victoria’s “second wave” outbreak by mid-September, and cases remain well contained elsewhere. 

In fact, the very weak signals in Queensland and South Australia look overdone and consumers look to be underestimating prospects in Western Australia after a painful six years of dwelling price declines. Unsurprisingly, conditions are weakest in Victoria, with Melbourne prices expected to decline 12 per cent this year – outpacing a 10 per cent fall in the biggest market of Sydney.

For now, we remain comfortable with our core view that prices nationally decline 10 per cent in 2020. This could however take longer to play out given several moving parts. 

Housing markets around the country continue to see big swings in turnover associated with the direct effects of COVID lockdowns, and a broad–based decline in prices, albeit with the latter coming through at a slower pace than at the height of the 2018–19 correction as supply in many markets remains low. 

What property investors do this cycle will be another important factor. 

The sentiment detail suggests that while investors are not about to rush back into the market, they also do not look to be facing the sort of financial stress that would see a widespread move to offload assets onto the market. Of course, some will be facing more intense strains and there could be a lift in “distressed” sales later in the year when there is also likely to be more active selling from distressed owner occupiers as support measures taper off and the recession bites.

Looking further ahead, developments around a potential vaccine will become increasingly important to all markets and economies. While there are many risks around the several front runners in final testing phases, mass rollouts in the first half of next year would be a game changer. 

In short, it’s all about the virus in 2020 and 2021 in terms of economic outcomes – and the same goes for housing market performances as well. 

The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.

Matthew is a senior economist with Westpac. His specific areas of expertise are housing markets and the Australian consumer sector. Matthew’s research has been instrumental in shaping Westpac’s views on the Australian economy, including recent calls on official interest rates. His research has provided important insights into housing market developments and the behaviours of the Australian consumer. He is the author of Westpac’s monthly Red Book report, regards as essential reading on the consumer sector. Before joining the Westpac team in 2007, Matthew held senior positions with leading economic consultancies in Australia and New Zealand.

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