July Market Update
What Bluebird is Seeing in the Market
The biggest story this month was Melbourne going into Stage 4 Lockdown and concern around whether this will affect our property market and the economy.
We are seeing this impact confidence, particularly interstate, but on a positive note Queensland is continuing to lead the recovery. So long as the virus is contained, we will continue to grow as a destination of choice for investment, migration, and tourism.
In terms of the housing market, there has been an uptick in activity in house and land sales due to the Homebuilder Grant and driven by the first home buyers and owner-occupiers. We are closely monitoring conversion rates, along with timeframes to achieve finance.
The owner occupier market is strong in inner city areas, with many agents desperate for stock. There has not been a flood of homes onto the market and limited new listings are keeping values up.
In the acquisition space, we are continuing to see significant levels of interest in good quality development sites, which is demonstrating that there is still capital out there and the competition for land is high.
The share market is in a holding pattern. Reporting season in September will be a key time as listed companies have to report the full impact of COVID-19.
Businesses are not falling over, yet. The government’s temporary debt relief protection and changes to the bankruptcy laws, will allow businesses to trade until 25 September. From there it could take 1 to 4 years for businesses to work through their issues. This is a space to watch.
Brisbane Housing Market
According to Tim Lawless of Core Logic, housing markets have remained relatively resilient through COVID-19, with the national index only falling 1.6% in the June quarter. This is nothing like the crazy headlines warning of 20-30% falls!
Source: Corlogic index results as at 31 July 2020
The Brisbane housing market has been holding up better than the larger capital cities with home values recording less downward pressure – only slipping 0.4% in the June quarter but still up 3.8% annually.
Local rental yields remain strong above capital city averages, tracking at 4.2% for houses and 5.2% for units. Sales activity has shown a sharp rise over the past two months, up by an estimated 74% since activity plunged in April.
Why Brisbane is the Place to Be
Brisbane property prices are still approx. 55% of Sydney’s property prices, while household incomes are only around 12% lower, underpinning the value of the Brisbane market.
With less reliance on overseas migration as a source of housing demand and the largest number of interstate migrants, the Queensland market is less exposed to downward pressure in housing values. Furthermore, once travel bans are lifted, the economy will benefit further from local travel.
Property experts and economists are forecasting that once we come through the coronavirus pandemic, Brisbane is likely to be one of the best performing property markets over the next few years. On top of all this, the Brisbane economy is being underpinned by major projects like Queen’s Wharf, Brisbane Live, Brisbane Metro, Cross River Rail, Woolloongabba Station Precinct, multiple new green bridges, Brisbane International Cruise Terminal, New Performing Arts Venture and the second airport runway.
RBA’s Macro Outlook
On a more challenging note, according to the RBA on Tuesday, the global economy is experiencing a severe contraction as countries try to contain COVID-19. Even though the worst of the contraction has now passed, the outlook remains highly uncertain. The recovery will be gradual, and the shape is dependent on containment of the virus. While infection rates have declined in some countries, they are still high and rising in others.
While on a micro level Brisbane is performing well, overall, the Australian economy is going through a difficult period and is experiencing the biggest contraction since the 1930s. However as difficult as this is, the downturn is not as severe as initially expected and a recovery is now underway in most of Australia. It was acknowledged that the recovery is likely to be both uneven and bumpy, particularly with the coronavirus outbreak in Victoria.
Given the uncertainties in the overall outlook, the Board considered a baseline scenario, where output falls by 6% over 2020 and then grows by 5% in 2021. In this scenario, the unemployment rate rises to around 10% in 2020 due to further job losses in Victoria. Over the following couple of years, the unemployment rate is expected to decline gradually to around 7%.
As Australian deal with the virus, the economy is being supported by the substantial coordinated and unprecedented easing of fiscal and monetary policy. The Australian Government’s announcement that various support measures will be extended is a welcome development and will support aggregate demand.
Record Deflation – Biggest CPI Drop Since 1948
The Consumer Price Index dropped an unprecedented 1.9% over the three months to the end of June, leaving the annual rate of inflation over the full financial year at minus 0.3%. This is the biggest drop on records going back to 1948.
The consumer price deflation was underpinned by the COVID-19 recession, free childcare, plunging petrol prices and falling rents. Excluding these three components, the CPI would have risen by 0.1% in the June quarter.
The Share Market – In a Holding Pattern
The share market was proving to be an accurate measure of how well Australia is handling the pandemic. When COVID-19 struck, the market recorded some of its biggest falls in history, but since then it has been slowly clawing its way back as some restrictions ease.
In recent weeks, we have found that it is just in a holding pattern.
What the share market is telling us is that the future is uncertain to the point where the market is unable to make its next move, up or down. Market movements will be very much related to movements in COVID numbers and that is completely unknown.
Even Daniel Andrews said, “I cannot tell you where we will be in another three weeks”.
Summary
2020 has been a wild ride so far, but if there is any place to be in the world right now – Australia is it. And if you were in Australia, the best place would have to be Queensland. So here at Bluebird, we are continuing to seek out and unlock the opportunities, we remain optimistic about the future, and we are keeping our eyes firmly on the horizon!