We’ve been very lucky here in Australia as our virus mitigation procedures have worked wonders and both our COVID-19 infection and mortality rates are relatively low in comparison to many other countries.
Accordingly, many are starting to look to the future and the way out of our social isolation and shut down of the workforce. Though our national borders will remain closed for the foreseeable future, we wanted to look internally to consider what life after COVID-19 might look like for the property and lending markets.
There’s much talk about what the unemployment rate in Australia is going to look like, with commentators stating we’ll probably see around 10-12% unemployment.
Since 1978, our highest rate of unemployment was 11.2% back in the early 1990’s.
<iframe src=’https://d3fy651gv2fhd3.cloudfront.net/embed/?s=aulfunem&v=202003191540V20191105&d1=20100419&h=300&w=600′ height=’300′ width=’600′ frameborder=’0′ scrolling=’no’></iframe><br />source: <a href=’https://tradingeconomics.com/australia/unemployment-rate’>tradingeconomics.com</a>
Unemployment generally spells bad news for the property market given it means more people are will need to sell their properties on the back of mortgage stress and less people are in a position to buy. That said, those that can buy will find themselves in a “buyers” market where there is greater supply available and less competition.
New house prices are starting to drop with predictions of a drop of as much as 20% in value in some areas. This could pose challenges for those needing to sell now. Household debt is at record highs in Australia and those who attempt to sell now may find they aren’t able to get the price they want or need to clear their debt.
Bear with us as it’s not all doom and gloom.
Low interest rates
For those who aren’t able to sell to get rid of their debt, we are seeing record low interest rates across most lending products right now.
There are both investment and owner-occupied rates under 3%, with some fixed home loan rates almost as low as 2%.
This means refinancing is a definite option for many to reduce their repayments and relieve stress.
We are also seeing banks offer interest only options for those who are suffering hardship and while there are the repayment deferments available with most lenders.
Lenders are starting to tighten their assessment criteria in the short term. This means some lenders are not offering new finance or refinances to those who are self-employed and working in certain industries (specifically hospitality, tourism, airlines and retail). They’re also ruling out casual workers or contractors while commissions and bonuses are being treated differently to before COVID-19 hit.
Essentially what’s happening is the banks don’t want to give loans to those who may struggle to repay it. This might seem harsh but the truth is it’s a good thing. Household debt is already at record highs and it would be irresponsible to keep extending credit to those who aren’t working and able to pay it off.
That said, it’s anticipated these will only be short term changes. The lenders who are changing their lending criteria have said they are likely to reverse this changes in response to the impact of COVID-19 reducing.
Short or long term?
Here’s the good news. Many experts expect this will have a relatively short-term impact on markets. Once the economy opens again and businesses resume trading, they’re tipping we’ll bounce quickly back.
We expect there will likely experience some form of recession throughout 2020, but always remember property is a long term investment. For those in the right position, it may now in fact provide one of the best opportunities to purchase property as either an investor or first home buyer. Why? Record low interest rates, property prices starting to dip from the peak and less buyers in the market mean greater options for buyers.
Entourage Property advocate Antoinette Sagaria suggests buying this side of Christmas will likely be the best bet if it’s something you’re looking to do. Interest rates are low, the cost of living is yet to be impacted heavily, lenders have access to government funding at very low rates and not all lenders have amended their lending terms as yet.
Keep in mind that it still has to be the right time for you on a personal level.
As you know though, no one has a crystal ball. Just a few months back we were all expecting the housing market to boom in 2020 and in February our share market reached an incredible peak before COVID-19 happened.
What we do know is this. We are all in it together and together we’ll get through this to the other side.
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