The REA Group Limited (ASX: REA) share price has risen very strongly by over 53% since late March. It fell heavily during the early phase of the coronavirus pandemic, falling from $116.90 on 7 February to $65.02 on 23 March. That’s a decline of 44%.
Since then it recovered nearly all of those losses and closed yesterday at $103.95. That’s a massive rise of 60%.
Let’s take a look at what has been driving the REA Group share price higher in recent months.
Australian residential property sector gradually bounces back
The Australian residential property sector has held up surprisingly well during the coronavirus pandemic.
As indicated by Corelogic research, Australian national economic and housing market indicators have shown some improvement since April. This has been partly driven by an easing of COVID-19 restrictions which has seen the reintroduction of open for property inspections and on-site property auctions. There was a strong absorption of new property listings due to an increase in sales during May. During this time, clearance rates have improved and consumer confidence rose by 33% since its low point in May.
This is helping to see property listing volumes start to recover towards pre-COVID-19 levels.
Solid recent financials despite a challenging market
Despite challenging trading conditions due to the coronavirus crisis, REA Group still managed to deliver a 1% increase in revenue to $199.8 million in its Q3 FY20 results. The online real estate portal also managed to achieve 8% in earnings before interest, tax, depreciation and amortisation (EBITDA). Although national residential listings declined 7% for the quarter, they increased in Melbourne by 6% and in Sydney by 5%.
As already mentioned, since then, the property market has improved further in May and June. So, I wouldn’t be surprised if these listing figures have improved further.
Where to now for the REA share price?
Although the REA Group share price has soared since its March low, it’s still below its 12-month February high, pre-COVID-19. Residential property market conditions have improved over the past 2 months. However, overall economic conditions have remained fairly subdued. The national employment rates remain high, and there is still the potential for house prices to fall over the next 12 months.
Based on this, it is very difficult to predict what will happen to the REA share price over the short term. However, over the long term, I believe the REA Group share price is well placed to outperform the S&P/ASX 200 Index (INDEXASX: XJO). I believe this will be due to the growing Australian residential property market, driven by overseas migration. Due to growing international divisions, I also believe the company is better placed for long-term growth than its main Australia rival, Domain Holdings Australia Ltd (ASX: DHG), .