Sydney and Melbourne's property markets have hit a 'turning point', as the coronavirus threatens to put auctions on hold

• The property market looks to be softening, as Sydney and Melbourne both experience their weakest auction clearance rates of the year due to the coronavirus.

• When their figures are finalised, both cities are expected to have sold around 57% of properties at auction over the weekend, compared to around 80% just weeks ago.

• If unemployment were to rise above 10%, prices could fall by as much as 20%, according to AMP Capital chief economist Shane Oliver.

• Visit Business Insider Australia’s homepage for more stories.

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The outbreak of COVID-19 may have spent the last three weeks smashing the sharemarket, but it had yet to put so much as a dent in the property market – until now.

Across the weekend, sky-high clearance rates – the percentage of homes sold – in Sydney and Melbourne finally started to drift back to earth. According to preliminary figures, 64.4% of Sydney properties sold at auction, while 62.7% sold in Melbourne. When those figures are finalised later this week, both are expected to sink to around 58% and 57% respectively. It's a far cry from the 80% rates they were both putting up a few weeks ago.

Those weekend figures could also prove to be high watermarks, with Prime Minister Scott Morrison telling Parliament this week his government expects the situation to last at least six months.

The subdued buyer across the weekend was perhaps not helped by it also being one of the busiest weekends of the year in terms of auction numbers, with thousands of sellers, having decided to put their properties on the market before the crisis really began to unfold, followed through.

"Despite the escalating health crisis and economic fallout related to coronavirus, this week was the second busiest for auction activity so far this year with 2,539 homes taken to auction across the combined capital cities," CoreLogic analyst Caitlin Fono wrote in a note issued to Business Insider Austraia.

"This week’s preliminary auction results mark a turning point in buyer and seller sentiment, with withdrawal rates rising as vendors think twice about testing the market and buyers losing confidence or choosing to avoid public gatherings."

"Prior to this weekend, the year to date withdrawal rate across the preliminary reading was averaging around 5% across the combined capital cities, rising to just over 8% on Sunday’s numbers. In all likelihood, we will see more vendors choosing to withdraw from the market until confidence and selling conditions improve."

If the pandemic and all its associated social distancing measures persist the property market could largely go on pause as buyers remain indoors and sellers wait out the storm. While that won't directly hurt prices, the broader economic impact could lead to something of a price correction.

https://twitter.com/ShaneOliverAMP/status/1241272936822005760

"Sales momentum is slowing significantly," AMP Capital chief economist Shane Oliver tweeted. "Coronavirus-driven social distancing and rising uncertainty around the [economic] outlook looks to be impacting. Expect price falls ahead."

Just how far house prices could fall however will depend on how high unemployment goes, according to Oliver, as coronavirus starts shutting down some Australian businesses and threatens a recession.

"A relatively short recession that sees unemployment rise to around 7.5% would likely only set prices back around 5% or so after which prices would bounce back," Oliver said in a research note issued to Business Insider Australia. "But a deeper recession with say 10% or more unemployment risks tripping up the underlying vulnerability of the housing market around high prices and high debt levels. This could see a 20% fall in prices.

"This is not our base case, but it highlights the need for the Government and the RBA to minimise the fallout from coronavirus shutdowns in terms of businesses and jobs."

With banks offering a six-month repayment holiday for mortgage holders, and the government pledging to support workers who lose their jobs, there could be enough support to insulate against the worst-case scenario.

So too could there be a sharp recovery waiting on the other side of all this, suggests Domain economist Trent Wiltshire.

"If contained, things will rebound quite quickly, and that goes for the property market as well," Wiltshire told Business Insider Australia, noting record low-interest rates would offer support.

At any rate, homeowners, investors and would-be buyers will all be watching how it unfolds.