• How could Coronavirus impact your house value?

    COVID-19 has delivered a hammer blow to the Australian economy and the housing market isn’t immune from the effects.


    As the unprecedented public health and economic crisis unfolds, it’s only natural for homeowners to wonder what it all means for house values.

    Here are four expert predictions according to Professor Shaun Bond, the Frank Finn Professor of Finance at the University of Queensland Business School:

    1.     Values could drop by 10%

    While the full extent of the COVID-19 impact will depend on the length of the emergency, Australian property owners need to brace for a fall. “An overall drop in the national house price index around 10 per cent is on the cards,” said Professor Bond. 

    JuliÔÇán Gentilezza

    Image: Julián Gentilezza 

    Even though that figure isn’t as dramatic as others being cited, he said for an investor or owner with a mortgage, a 10% fall in value is huge.

    “For an investor with a mortgage of 50% of the value of the property, a fall of 10% in the price of a house translates to a 20% drop in their equity. For someone with a mortgage of 80% of the value of the house, the fall in equity is around 50%. That’s a huge loss of value for a homeowner or investor to bear.”

    Professor Bond explained current housing market data isn’t yet showing much impact, but that’s because it tends to lag behind what is currently happening.

    “It may be another month or so before price declines start showing up in the national price indices.”

    Track your property’s likely market value here.

    2.     Property transactions will slow

    Professor Bond predicted that the negative short to medium term impact will be driven by a number of factors.

    Vendors who don’t have to sell, will keep their properties off the market and many buyers will defer plans to enter the market or upgrade because of job uncertainty. 

    Tom Rumble

    Image: Tom Rumble

     “There is a risk that a lot of distressed properties could hit the market, in spring, if the economic situation doesn’t improve,” he said.

    But there is some good news, despite the predicted drop in transactions.

    “Low interest rates, and a willingness of the banks to work with distressed borrowers, will help mitigate the negative impact over the next three to six months.”

    3.     Some states and territories will fare better than others

    Evidence from the US showing sharper housing market falls where the actual virus is hitting hardest, is instructive for Australia and suggests News South Wales and Victoria may be at higher risk, Professor Bond said.

    Simon Rae

    Image: Simon Rae

     “Along with increasing unemployment, we are also likely to see the flow of foreign capital reduced in the short-term and a drop in international migration. These impacts are likely to disproportionally impact the Sydney and Melbourne markets.”

    He suggested states and territories not so struck by the virus, may be able to open their economies sooner, reducing, but not eliminating, the negative effects on the market.

    “It also means businesses in these states may be in a better position when all restrictions are eventually lifted. However, areas that are particularly exposed to hard-hit sectors like tourism may take a long time to recover.”

    4.     There will be short and long-term impacts

    Unless there’s a dramatic and unexpected scientific breakthrough in the short-term, as the crisis continues there will be a negative impact on prices coming through in the official data, Professor Bond said.

    “We are also likely to see an increase in distressed sales. This may be concentrated in areas with a lot of highly-geared investors, or for home owners where jobs have been particularly hard hit by the crisis.”

    Longer-term, if the crisis continues and working from home becomes mainstream, he said there’s potential for a shift in homebuyer preferences towards large suburban or even semi-rural properties and away from dense inner-city areas

    Fran Hogan

    Image: Fran Hogan

     “This might be bad news for investors in large, inner-city unit developments. With all that said, even though the rental market in some areas will be negatively impacted now, as people delay home buying, the demand for rental properties could increase once we get through this initial period.” 

    Originally published on realestate.com.au ‘How could coronavirus impact your house value?

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