Floods and the Property Market

What are the effects of recent floods on the property market? And as we enter yet another period of severe weather warnings, what might be the impact going forward?

You’ll forgive us the artistic licence in the cover image, but as the rain keeps on coming, it does feel a bit like this right now. And it happens to work well with our brand colours ;).

Aussies have had a more than their fair share of significant events over the last few years that ought to have knocked the property market for six. From devastating bushfires, to floods, to a pandemic, to wild storms and cyclones, and back to floods again. So far, the property market has weathered the storm of these disasters pretty well, if you’ll excuse the pun – and even accelerated in the wake of the pandemic, which wasn’t something most would have predicted.

But how will the market fare after this latest round of flooding? Is this going to be the straw that finally breaks the property camel’s back and plunges the market into decline?

Let’s take a look…

First let’s examine where we are right now as March draws to a close. Well, according to data collected by Corelogic overall property values continued to rise by 2.7% nationally in the quarter to February, with the growth rate slowing to 0.3% in the month of February. Here in Sydney, our dwelling values continued to rise, albeit at a more modest rate of 0.8% than we have seen of late. And to keep things in perspective, Sydney price values increased by 22.4% over the past year.

Sydney sales volumes, remain at more than 26% above the five-year average, though properties have taken slightly longer to sell, with the average number of days on the market increasing from 21 to 33, and clearance rates seem to have held their own.

Sydney’s property supply is currently around .7% lower than last year, continuing to drive the seller’s market.

Check out today’s daily home value index at CoreLogic.

On a macro level, according to Propertyology, the current volume of resale supply is comparable to 2010, however Australia’s population as grown by 3.9m in the last 10 years, which it believes is a recipe for double digit growth going forward. This is tempered somewhat, however, by the approval of more than 400,000 new residential dwellings for construction over the last two years, set against a population increase of only 150,000, due to constrained migration (the previous two years being 780,000).

So, is further growth sustainable following the devastation of the recent floods? The fact that this recent deluge has been described as a 1 in 50-year weather event, does rather suggest the impact will be greater than previous flooding events.

Finance brokers report the floods have put a halt to some ongoing transactions in affected areas, while buyers reconsider their offers during cooling off periods, and many are waiting to see how much damage the properties have sustained, once the flooding has receded. This could lead to a number of offer withdrawals or price re-negotiations.

So, we may well see a dip in property prices in affected areas, but this will have a knock-on effect on surrounding suburbs that avoided the watery surge, and this is likely to cause higher demand, and consequently, increased prices in these suburbs.

Heavily increased insurance premiums in high-risk areas, may also drive buyers to seek alternative locations, along with investors, also seeking to avoid risk, potentially, further exacerbating the shift in demand towards suburbs identified as low-risk.

Another factor to consider is the inevitable decrease in property supply this will fuel, which could help offset any potential fall in prices.

We have recently seen increases in value of areas such as The Blue Mountains and other popular ‘tree change’ markets, and given their higher elevation, we may also witness even more of a drift to such areas.

On balance, tragic and devastating as they are, it may well be that the property market is less likely to be affected by the recent floods than it will be through rising inflation and what many believe is an inevitable increase in interest rates. This would undoubtedly affect mortgage-holders and buyers alike, and will further damage the potential for first time buyers, in particular, to have any hope of gaining a foothold in the market.

Let’s hope the weather gods give Aussies a bit of a break for the rest of the year, and give those affected some much needed time to recover and rebuild their lives.

For a more general take on the myriad factors affecting the real estate market, take a look at our latest Real Estate Report.