How badly has COVID-19 affected the property market, how long will it take for the market to get ‘back to normal’ and what on earth can agents do right now when so much is out of their control?
Our natural responses as humans when things become stressful is to stop and feel a bit ‘deer in the headlights’. If we go very still and quiet, maybe it will pass over us. The second reaction is to look around for friends to commiserate with and lament how strange and terrible it is and have our anxieties confirmed. The third response, finally, is to action.
But going through these three steps can be slow, and with our businesses on the line, we don’t have the luxury of indulging in drawn out periods of waiting for this to pass. It’s time for action. Here’s what you need to know and some actions you can take.
What has happened to the market so far?
According to CoreLogic, property values have not plummeted. The market is definitely experiencing a reduction in listing volumes – in the 28 days to April 19, new listing volumes were -28.7% lower than they were in the same period last year and we’ve seen about a 30% drop across nearly all states in sales volumes.
But prices are staying firm. The reason why is that because listing volumes and seller activity is so low, the supply of properties to buy is constrained. Vendor expectations are also playing a large part. The current isolation policies are seen as temporary. There is an assumption that this will end soon, and the market will pick up again and potential sellers are prepared to wait.
The support offered by government is playing a big role in this lack of panic. Although many have lost their jobs, they feel there is a safety net under them. The option to pause on mortgage payments being offered by banks is also playing a key role. While the impact of spikes in unemployment would normally hit the property market hard by creating urgent, distressed sales, the breathing space being offered by banks is slowing this considerably.
Typical market flows and the impact of the past 6 months
What’s interesting is when you consider typical market behaviour, what’s happened in Australia over the past six months and overlay that with the new Covid-19 scenarios.
Typically the cycle goes like this. The busy Spring market hits, a lot of people watch and think “Oh, we should think about selling/buying,” then before you know it, Christmas arrives, and there’s a hiatus while everyone goes on holidays.
Over the summer break, people rest, start to conceive the work that is required to get their property ready for sale, make a new year’s resolution, and contact their agent once they’re back from leave. The Autumn market is often then even busier than Spring because of this Summer holiday time to plan and prepare.
But that’s not really how it went this time. While the Spring market was exceptionally strong, the bushfires across the country wrecked the holidays for most of the nation. There was no rest and relaxation period – it was a time of quite extraordinary stress in many markets. Then the Covid-19 lockdowns hit just as the Autumn market was working its way into full swing. Overnight live auctions and inspections were literally stopped.
But the market did not stop. It quickly deployed technology solutions and work arounds. To Zoom became a verb. Suddenly agents realised the mobile phone in their pocket could do a hell of a lot more than simply make calls.
What is going to happen to the market next?
So what we know is that despite all the worry, the market is going to continue to transact. The risk of distress sales flooding the market seems to have been stemmed by Government policies, and with talk of isolation starting to lift by the end of May, there is light at the end of the tunnel.
Global property market commentator Mike Del Prete predicts the recovery will be‘check mark’ shaped (that’s a tick to us Aussies) as opposed to a U shape. We’ve gone hard and quick into the volume reduction but will then come slowly but firmly out.
But when we look at Australia, we see our own unique market flows, combined with the disruption that the market experienced across December, January and even in to February had changed us even before Coronavirus hit by disrupting our typical transaction patterns.
This is important because it hints that there is a lot of pent up demand out there.A majority of people who back in October last year were thinking they should sellor buy, but who because of events did not enter the market, are still more than likely to be wanting to buy or sell. The need for a new home rarely goes away. The reason they aren’t coming into the market is because they are scared and uncertain.
It will be the actions of the property industry and its ability to bring these people back into the market by helping them become aware and confident that will help us manage our own recovery.
What should agents be telling sellers and buyers about the market now?
First of all, you should be honest. Your clients will be expecting spin but now is the time to shoot straight. Yes, the number of properties selling is considerably less right now – it’s about a third off – but sellers are still getting strong prices due to the lack of property available for sale. This is definitely not a time when buyers can name their price and make lowball offers.
If you’re a vendor who needs to sell, you don’t need to be frightened. You need to work the market. You are still very likely to get a good price, and with the new technology that agents have quickly deployed, it’s possible to manage inspections and hold auctions and negotiations virtually so the risk of catching the disease during the sale is significantly minimised.
As isolation restrictions lift – even if it’s gradual – market activity will also increase. If you’ve been thinking of selling, now is exactly the right time to start to prepare for that sale.
What should agents be doing to build your business right now?
Once agents spoken to your existing vendors, calmed them down and encouraged them not to withdraw their sale, it’s time to call buyers.
It’s my prediction that the agents that love up their buyers the best during the period are going to come out of the Covid-19 period the strongest. Many buyers are holding back. Some are worried if now is a good time to buy – or should they wait for property prices to fall? Others think they smell blood and could get the deal of a lifetime.
Both types need to (gently but firmly) be encouraged to see what is really happening in the market.
To win good quality properties, buyers need to turn up with their best offer. Pricesare holding firm because there’s not a lot of stock around. But if they do find something they love, and they intend to own that property for more than 10 years, then whatever happens over the next six months is irrelevant. They need to act, not dilly dally or try to perfectly time the market.
Where the real advantage for buyers right now is that the market is not frantic. They can catch their breath, make a sensible offer and buy well. Point out they don’t need to buy at the bottom of the market – no one knows when the market has bottomed out until it starts to rise again anyway. And do they really want to buy in a crazily rising market?
What should agents be doing to manage their own restart?
Agents should not be ‘waiting’ for the recovery. You need to be creating your own recovery right now.
Off market transactions are the first step. In calling your buyers, find out what they’re really looking for. And then go through not just your list of current stock, but all the appraisals you did from October last year that never went to market. Is their dream home in there? Could you coordinate an off-market sale and win a seller by bringing a well qualified buyer to them.
What about the landlords on your books. Are they looking to add to their portfolio? Who amongst your tenants have home ownership dreams? It’s time to start creating transactions, not waiting for transactions.
The second step is to ring every appraisal you’ve done from October onwards that never listed. If you could bring them a buyer, would they be interested?
You’ve got to remember, your potential vendors have been locked down in their homes for the past six weeks. If they felt their current home wasn’t quite right and needed changing before Covid-19, their dissatisfaction with their current home will be absolutely peaking right now.
And there is the promise that isolation will soon end. There’s a lot of work involved in getting a property ready for sale. There’s no better time to do that work when you’re forced to stay home and climbing the walls. Bunnings is still open and let’s face it, it’s a great project to make the time pass. Why not get it organised now before life does get back to normal and crazy again so you can make the most of the rising market.
The role of Winter and Spring markets
As Australia comes out of lockdown, we’ll be entering the Winter market, which urban myth tells every seller is a terrible time to sell. Your potential vendors will be thinking that maybe they should wait until Spring. This is where agents really need to work hard and explain why that’s a bad idea.
We know from past market performance that volume does typically drop off in Winter but it does usually keep prices strong. The combination of the COVID-19 market and Winter, plus active buyers buoyed by low interest rates and a lack of stock is going to mean good properties will sell well.
When Spring comes, the combination of pent up demand from nearly nine months of sidelined transactions plus growing confidence that Coronavirus is over is likely to create a flood of properties to the market. Again, experience tells us when this happens, the risk is that it will actually start to push prices lower as buyers get more choice. Smart sellers need to act now.
You won’t convince every seller to act, but you are likely to be able to encourage some – enough to keep you ticking over until the rush does happen. And if a vaccination is developed, the speed of the recovery will amplify at warp speed, so see this as part of your preparation.
What every agent should be doing right now
Now more than ever, agents need to be sharing their knowledge to show how much they know about the market. We need to be showing sellers and buyers that we can make it safe for them to transact, and that we position ourselves as trustworthy professionals who will get our clients through this successfully.
We cannot do all of this on the phone. Yes, ring past buyers and sellers, but you should also be marketing to, and targeting, potential clients through emails and digital and social media with carefully thought out information that steps people through what’s happening, helps them understand what to expect, and makes them feel more confident. There are more people out there who feel like this than you know about. Reach them too.
Now is not the time for brag-worthy letterbox drops about recent sales or door knocking. It is the time for targeted information that piques peoples interest and gives them a sense of control.
Now is the time for agents to put their clients fears at the centre of their communication and speak calmly and directly to that.
Markets only ever do three things; they go up, they go down, they go sideways. In every single one of these situations, someone needs information to help them avoid making a bad decision, someone needs information that will help them make a great decision, and someone else just needs reassurance that what they’re doing is going to be okay.
In this context, the disruption of Covid-19 – while a bigger bump than normal - is really just business as usual. Contextualise what you know, stop waiting for it to be over, and act now.
You’ve totally got this.