“COVID-19 is testing us like we've never been tested before…”  Josh Frydenberg. 

Those are the words of the Federal Treasurer and it’s a sentiment shared by most Australians today. 

The health impact of the virus is bad enough, yet it is hopefully short term as the whole world races to develop a vaccine.  

At a Glance:

• The biggest economic threat to home values is rising unemployment as a steady income pays a mortgage
• Unemployment rate was at 7.4 per cent in June
• Job losses so far have been in industries dominated by renters

It’s the economic impact that will arguably be longer lasting. 

No matter what causes an economic slowdown, the biggest economic threat to home values is rising unemployment as a steady, reliable income is needed to qualify for a mortgage. 

Latest figures show unemployment was at 7.4 per cent in June, the highest level in more than two decades.

However, most job losses so far have been in industries largely dominated by renters.

That’s why we’ve seen a greater and more immediate impact on rental values.  

Ceased migration and an exodus of international students has also impacted rental demand, particularly in Melbourne and Sydney. 

Capital values have softened in cities with higher virus case numbers but that’s more to do with reduced consumer confidence than job losses.

Property values have gone up this year in cities less affected by COVID-19, such as Adelaide and Canberra; as well as many regional areas. 

Latest CoreLogic figures show home value dips of -2.1 per cent in Sydney, -3.2 per cent in Melbourne and -0.9 per cent in Brisbane over the three months to August, whilst Canberra gained 1.3 per cent and Adelaide 0.3 per cent.

Homeowners who have lost their jobs or had hours reduced have had many options to tide them over, such as mortgage deferrals, early withdrawal of super savings, JobKeeper and JobSeeker.

Modern technology has enabled millions of people to work from home, and this has kept a large part of the workforce employed.

You might be surprised to learn that property prices have actually gone up during periods of rising unemployment in the past.  How could that possibly be?

It’s because the first thing the RBA usually does when the economy is weakening is lower interest rates, which sparks interest in property.  

That option isn’t available this time, however borrowers can refinance and a huge number have done so to improve cash flow and offset any reduction in income. 

For the time being, we are not seeing distressed listings nor an oversupply of homes for sale in the market, which is keeping prices relatively stable. 

We all wish there was a crystal ball to tell us what will happen with COVID-19 and how it might impact the property market and home values. 

For now, negative factors such as low consumer confidence, job losses or job insecurity and immigration on indefinite pause are somewhat mitigated by 2-3 per cent mortgage rates and a favourable supply/demand dynamic given very low levels of stock for sale nationwide.  

However, we can draw comfort from how Australian real estate has performed in past recessions or financial crises. 

Home values across the combined capital cities fell just -6.2 per cen% in the recession of 1989-91, according to CoreLogic data.

They fell by -7.6 per cent when the GFC hit and by -6.2% during the GFC fall-out over 2010-12. 

Property requires a long-term perspective and Australia’s big cities and prime regional markets have a magnificent history of strong recovery from adverse events and steady, reliable growth over time. 

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

For more information including articles, checklists, guides and more visit McGrath’s Insights Centre

Similar to this:

John McGrath – What $700,000 buys 

John McGrath – How stimulus is keeping property prices stable 

John McGrath – Covid-19 infrastructure recovery program starts locally