The CoreLogic home value index, covering the eight major capital cities, declined 0.5% in May, the first monthly fall since June last year as the economic impacts of the coronavirus pandemic take its toll.
But Australia’s property markets look like they’ll be in for a softer landing than projected by the property pessimists.

Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction.

With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.

Our low-interest rate environment is one factor helping to support the housing markets, with many owner-occupiers paying mortgage rates less than 3% and investors experiencing the lowest mortgage rates in history.

Adding to the massive fiscal stimulus already announced, the Australian Government has announced a $680 million housing package designed to stimulate the residential construction sector.

The HomeBuilder package includes grants of $25,000 for owner-occupiers who are:

• building a home up to the value of $750.000
• doing a renovation worth between $150,000 and $750,000.

The scheme is available for singles earning less than $125,000 or couples earning less than $200,000.

The program will run from 4 June until to 31 December, and construction must commence within three months of the contract date.

At $25,000, this is a substantial grant, and will provide some support to the residential construction sector.

While off-the-plan apartment sales are eligible, the short time frame of the program suggests that detached house building, rather than multi-unit dwellings, will be the main beneficiary.

The dollar spend is quite low by fiscal package standards, but it is the limited time frame of the program that will act to bring forward some additional private spending on residential construction in the short term, and go some way to plugging the emerging hole in residential construction activity.

At the same time, reports are emerging of banks offering extended interest-only periods and allowing customers to pivot to interest-only repayment schedules.

Some are suggesting the property market will fall off a cliff in September when these mortgage holidays and government stimulus packages come to an end.

But the government isn’t likely to have spent so much time supporting the economy in the housing market to allow this to occur.

It seems to be more likely that this kind of policy is likely to become more widespread later this year, as ‘mortgage holiday’ periods end and government stimulus measures taper.

Such a low cost of debt, along with improving consumer sentiment and an easing in social distancing policies were factors supporting an 18.5% rise in housing activity through May, after-sales plunged by about 33% nationally in April.

The low rate setting and improving level of market activity also partially explain why housing values have fallen by only less than half a percent through the COVID-19 crisis to date.