Why are some capitals outperforming others?

CoreLogic’s head of research, Eliza Owen, has pointed to a number of factors, both health and economic, which are driving different segments in different directions.

“Looking forward, there are a variety of factors that will influence the outlook for home values. Of immediate concern is the steepening curve of the virus in Victoria. Considering Victoria accounts for around one quarter of the nation’s economy, the stage 4 lockdown has already dampened both consumer and business sentiment nationally and the interruption to economic activity will deepen and lengthen Australia’s recession,” Ms Owen said.

She pointed out that even with government support of around $18 billion a month, cities where labour markets are more impacted are also likely to underperform, as will those with more significant exposure to overseas migration as a source of housing demand.

“The RBA has previously noted that for every 1 per cent rise in the unemployment rate, 90-day mortgage arrears generally increase by 80 basis points. If unemployment rises to 10 per cent, that implies a 90-day mortgage arrears rate around 5 per cent. Arguably, this may be an overstatement, considering weak labour market conditions are skewed to more casualised workers who tend to be renters rather than home owners,” Ms Owen noted.

Melbourne

According to the property researcher, Melbourne is currently facing a number of headwinds brought on by the COVID-19 crisis.

“Cyclically, Melbourne property is subject to more volatile growth rates and is also presenting strong declines off the back of very high growth rates through the previous upswing,” Ms Owen said.

“Structurally, there has been an enormous demand shock to the Melbourne property market with the closure of international borders, where Melbourne previously had the highest level of net overseas migration of the capital city markets.”

Victoria has also seen the largest decline in payroll jobs of the states and territories, according to ABS data. Conversely, the ACT has seen property value increases of 1.3 per cent since March. 

ACT

While the performance of the ACT market may seem like an anomaly, the ACT dwelling market is one of the few markets performing as may be expected amid the record-low cash rate setting.

As Ms Owen said, “RBA research has noted that reductions in the cash rate typically increase property values over time, because debt becomes cheaper and purchasing capacity increases.”

Adelaide

Adelaide is a relatively steady market that has traditionally not seen volatile movements in response to negative economic shocks. This may be partly to do with the relatively low level of investment activity across the market. 

CoreLogic estimates that the portion of dwellings across Adelaide that were owned by investors as of July 2020 was 28.9 per cent, compared with 34.5 per cent nationally. 

Changing workforce

A common issue that is impacting all residential property markets is the changing workforce, with lockdowns impacting the hospitality industry especially hard.

According to recent employment data, 70 per cent of food and accommodation employers reported a reduction in staff hours. Food and accommodation employs about 8 per cent of Australians, or about 1.2 million people. 

“The February edition suggests that most food and accommodation workers are highly concentrated in Sydney’s Inner West, followed by the Sunshine Coast and the Coffs Harbour-Grafton region. This market has likely been buoyed by the relative stability in employment across sectors where workers are on higher incomes and are more likely to be home owners or prospective buyers,” Ms Owen concluded.