Melbourne Drives Australian House Prices Lower

Australian house prices fell for a fourth consecutive month in August as a slump in the Melbourne market — the center of a renewed Covid-19 outbreak — weighed heavily on the national picture and expected higher unemployment continues to cloud the outlook.

Property values in major cities dropped 0.5% last month, CoreLogic data released Tuesday showed. Prices in Melbourne slumped 1.2%, with the city’s 5 million residents having endured around two months of lockdown conditions to contain the spread of the coronavirus. Through the course of the pandemic, Melbourne has fallen 4.6%.

In Sydney and Brisbane, the rate of decline eased, while prices held up or improved in other major cities, reflecting the link between market performance and the severity of social distancing policies, according to Tim Lawless, head of research at CoreLogic. Sydney’s decline cooled to 0.5% from 0.9% in July.

“Looking forward we are likely to see a diverse outcome for housing markets around Australia,” Lawless said. Key will be “how well the virus is contained and the region’s exposure to other factors such as its reliance on overseas migration as a source of housing demand.”

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The central bank’s record-low interest rates, bankmortgage holidays and government stimulus have helped support the market during the pandemic. But the period ahead is likely to prove another testing time with Victoria’s shutdown expected to drive unemployment up to 10% and the government’s cash support set to be scaled back.

“So far there has been no evidence that large numbers of distressed properties are coming on the market,” Lawless said. “However, this could change toward the end of the year and into next year as fiscal support tapers and lenders become less lenient on distressed borrowers.”

“Considering fiscal stimulus polices are set to reduce at the end of this month and lenders will be conducting six month check-ins with borrowers taking a repayment holiday, the downside risk to home values remains high,” he said.

The Reserve Bank of Australia releases its September policy decision in Sydney Tuesday and is expected to keep interest rates unchanged at 0.25%, where they have stood since its cut at an emergency meeting in March.

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