Record low interest rates, home loan holidays and working from home may have prevented the Australian property market from crashing during the COVID-19 pandemic.

New analysis from property firm CoreLogic has theorised why property values did not tumble during the worst of the pandemic, particularly when the fortunes of small business and employment were so dire.

Just prior to nationwide lockdowns, many were expecting the worst: general consensus was that Aussie property values would drop by anywhere from 10 to 30 per cent.

General consensus was that Aussie property values would drop by anywhere from 10 to 30 per cent. (Domain)

But the reality was far different.

As a whole, between March and October this year Aussie home values fell just 1.7 per cent. In October they even rose – posting a marginal but technically significant 0.4 per cent increase.

So why didn’t the Aussie market crash?

According to CoreLogic’s Head of Research Eliza Owen, the low cost of debt was a major umbrella for the market.

“The cost of borrowing money is probably one of the most important factors influencing property values. Over 2020, the RBA have reduced the official cash rate target (which influences lending rates) by 65 basis points, to 0.1 per cent,” Ms Owen writes.

It’s theorised that the many of the Aussies who were unfortunate enough to lose their job were most likely not invested in the property market at all. (9News)

“In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record-low mortgage rates.

“This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8 per cent increase in property values over the following two years.”

When unemployment spiked, those who couldn’t afford their mortgage were given a reprieve: all of the major banks offered six-month repayment “holidays” to provide a buffer between job losses and defaults.

Mortgage repayment holidays protected those who were at risk of selling. (AAP)

“Those that did not want to sell amid economic uncertainty due to an inability to repay their mortgage, did not have to,” writes Ms Owen.

“This may have contributed to very low levels of stock throughout 2020, which only reduced further amid stage 2 restrictions from March. The low level of stock on market likely helped to insulate dwelling values during this time.”

Lastly, it’s theorised that many of the Aussies who were unfortunate enough to lose their job were most likely not invested in the property market at all.

Many of the Aussies who were unfortunate enough to lose their job were most likely not invested in the property market at all. (Peter Rae)

“Those working in food and accommodation and arts and recreation, have seen devastating job loss through the pandemic,” Ms Owen writes.

“However, those working in this industry are less likely to have mortgage debt.

“The decline of employment in these sectors likely contributed to severe pockets of rental income decline, but the investor servicing debt may be able to hold on to the asset while it is temporarily vacant.”

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