Issue 9 | April 9th 2020 | The Market Impact Of Covid-19
Hi, Andrew Bell here with you. As promised, I will be sharing with you over the next few weeks the contextual learnings I have gathered through 45 odd years in the real estate industry and through some seven real estate cycles. Markets of all types whether they are stock markets, gold bullion, oil, or real estate are primarily driven by one key factor. Supply and demand.
In the real estate market, properties rise in value because there is a greater number of buyers than properties to purchase. This creates greater competition among purchasers which drives prices higher as people will offer higher and higher prices in order to secure the property of their choice. Likewise, the reverse can happen where there are more properties for sale than there are buyers and competition among sellers to find buyers will see certain sellers reduce their prices in order to attract the buyers to their properties.
The essence of demand is consumer confidence. The more confident people are about any market, the more demand there is. In terms of the real estate market, that confidence is driven by five key factors: 1) The state of the economy, 2) Interest rates, 3) Population growth, 4) Unemployment, and 5) Housing affordability.
Over the past ten months, all those key factors have been in healthy territory. GDP was on the rise, interest rates were at record lows, population growth was solid, unemployment was stable, and housing affordability was comfortable thanks to falling interest rates. It is what generated a very health volume of buyers.
What has happened now? We know the economy will take a substantial hit as a result of measures introduced to fight COVID-19, unemployment will rise significantly, population growth is scheduled to remain constant, interest rates have fallen even further to new record lows, and housing affordability is even better for those employed. The immediate reaction has been the sharpest fall in consumer confidence since records were kept.
This is not unusual. It is the typical kneejerk reaction that occurs when a sudden shock hits the economy. What we will now see is a deeper examination of all those factors and for consumers to really assess how it affects them. The Government has put an all-time record stimulus package in place. Most leading economists accept that there will be an immediate recession but are forecasting a significant rebound in our economy as the stimulus takes effect. Job losses will be very significant whilst ever we are in voluntary isolation, but as soon as the coffee shops and restaurants and sporting fixtures and everything else opens up again, we will be back in force living life again and so there will be huge demands for employees for all those businesses. Likewise, there will be a rebound in consumer confidence as people feel relieved that the Coronavirus is no longer with us and that we can get back to normal life.
There is now a much talked about ‘bounce’, which is where, after the sharp falls we are experiencing now in all economic activity, there will be a strong rebound as soon as the restrictions are lifted as the economic stimulus measures click in. Hold onto your hats and be prepared for that.
No question that the real estate market has been reshaped for the present. But, life goes on. Everyday there are those who must sell and those who must buy, and it is happening right now. In March just finished, Ray White sold $4.4 billion nationally. That is one company and a lot of real estate activity. That number might surprise people, but it just shows that even in these restrictive conditions we are operating in, there is an ever-constant demand for people to sell and buy homes. In fact, we have sold well over 300 properties under the hammer at auction in last two weeks.
There is a lot yet unknown, but keep an eye out for consumer confidence measures as they are going to give you a clear indication around how people are feeling about those five key factors.
Remember, everyday of the week properties are exchanging hands between buyers and sellers and that will continue no matter what, but the speed at which that happens and the volume at which it happens has its home in consumer confidence.
Good to see some promising news around the contagion and fatalities from COVID-19, but as we all know, we have a mighty long way to go and we are likely to be living with the type of restrictions we have in place now for many months to come.
Stay safe, stay at home, and let’s get on top of this. I’ll be back to you next week.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group