COVID-19. How It Will Effect The Real Estate Market?

The current coronavirus situation has a lot of buyers, sellers and real-estate agents worried about what will transpire in the property market in the coming months and years. This pandemic is affecting how all of us live our lives, and it is understandable that people are feeling anxious about dealing in the property market.

Although there are many unknowns and uncertainties, we can make some preliminary predictions about what is most likely to happen, while also staying prepared for the worse-case-scenario.

Keep reading for a run-down of the three potential scenarios that will eventuate:

 

What will Covid-19 do to the property market?

Three Scenarios: How COVID19 Could Play Out.


Worst-case scenario: Doom and gloom

 

The worst thing that could happen to the property market as a result of the Coronavirus is a GFC-like scenario were lines of credit are frozen and buyers won’t have access to the bank’s money. If this happens, we should see the problem start in the U.S and spread to other countries. However, it is important to remember that as devastating as the GFC and the subsequent fallout was, Australia did not experience a banking-lockdown anywhere near the severity reached in the U.S.

 

Australia did not experience the devastating effects of the subprime mortgage structures, and our banks were relatively unaffected. Housing prices stalled for a while, the stock market declined, but buyers still had access to finance.

 

In the unlikely situation where we find our big banks unwilling to provided mortgages to buyers, the real estate industry will be forced to deal exclusively with cash-buyers. Property prices will drop by around 30% and the Australian real estate industry will experience the greatest shake-up since World War II.

 

It’s important to realise that this scenario is very unlikely. Australia’s property market is one of the most resilient in the world and will most likely pull through this pandemic without any major long -term effects. The U.S property market is notoriously volatile and we should be careful when trying to draw parallels between their market and ours.


Scenario 2: Business as usual

 

The best thing that could happen under these circumstances is a relatively flat market for a few months and then a gradual recovery as the lockdown comes to an end. If the real estate industry is able to recover and begin operating as it once did, then we should initially see less sellers and less buyers and the prices staying relatively stable. As people’s financial situations improve, which could take years, and they begin to think about buying new houses and investment properties, prices will start to move upward again.

 

This situation is also unlikely in our opinion, as we have already seen a downward shift in certain markets around Australia. Many people are struggling to meet the cost of living at the moment, let alone finding the ability to buy a house. This will most likely result in a stagnant market for a few years as people slowly recover from the financial hardship of the Coronavirus.

 

 

 

What is happening in the rental market right now? Listen to my podcast about the Melbourne property market, we interview a property manager about what is really happening. 

Scenario 3: What is most likely to happen 

Given what we know about the Coronavirus and its impacts so far, this is what we think is most likely to happen in the short to medium term.

 

COVID-19 and Real EstateLess property will be coming onto the market in the coming months. In a downturned market, vendors who are not desperate to sell have no incentive to do so. They will get less than they could have a few months ago, and the best thing to do for their finances is to hold the property for a few more years and sell it once the market recovers somewhat.

 

The obverse to this is that the vendors who do choose to list their property will have a real reason to sell. Maybe they are being forced to move for work or they are downsizing to reduce their financial risk. Either way, if they want to sell, they will be forced to accept  market value for their property, which will be less than it was a few months ago.

 

This will provide a buying opportunity for those who have been financially unaffected by the Coronavirus or who have enough cash to buy outright. Property prices will decrease by 10-15% which has already happened in many parts of Australia.

 

Those who have retained their jobs and are still able to service a mortgage will find that banks will likely tighten their lending criteria even further to counteract high risk customers, the people whose jobs are affect by Covid-19. This is a natural step the banks will take to reduce their exposure and ensure they get their money back.

 

This scenario is likely to drag out until a vaccine is created and people can move around and return to their normal lives. Things won’t start returning to normal until they return to work, or until they find new jobs. People won’t think about buying property unless they have the financial means to do so. Property prices as a result will adjust downward and potential buyers should be able to scoop up some good deals.


Conclusion

 

There is much to be afraid and anxious about under the current situation, but we should focus on what we can control and how we will react once the worst of it is over.

 

If you’re thinking about selling your property, it might be wise to hold off for a year or two until the market settles down and begins to recover. If you must sell for any reason, realise that it is not the end of the world, to get the best advice, speak to a Vendor Advocate first. You might not get the price you would have received late last year, but the property market is volatile and highly sensitive to things like pandemics. This is a major, global event which is effecting everyone to some degree and you could always be worse off.

 

If you wanted to buy, but now find yourself unable to afford it, focus on securing your financial position so that when things are back to normal, you can burst out the gates and score a good deal. You might find yourself regretting the fact that you can’t buy something right away, but if you are patient, keep your wits about you and keep putting money away for a home, you will come out on top and potentially find a great property at an even better price.

 

If you have the means to buy a property, then you should do so. There will be some great deals on the market in the months to come and you should find that your dollar will buy you more than it did a little while ago.

 

We suggest hiring a buyer’s agent to help you navigate the current property market. There are still plenty of pitfalls for buyers eager to scoop up a cheap property. Don’t let attractive prices and low competition stop you from doing your due diligence, and everything you otherwise would have in a normal market.

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