Even in the midst of a recession the Australian housing market continues along its merry way
The Australian housing market is a peculiar beast. You would think that in the midst of a worldwide pandemic that has seen Australia’s economy crash by 7%, and around one in five Australians either unemployed or desiring more hours that house prices might take a tumble. But no.
This week the bureau of statistics released the latest residential property price index which shows that across the nation’s capital cities, property prices fell 1.8% in the June quarter. And sure, that might sound like a lot – perhaps even that there is a major market correction. But it is not even the biggest one quarter fall in the past two years, let alone anything like the record falls we have seen in other parts of the economy.
And despite that one quarter fall, residential property prices remain well above what they were a year ago:
Every capital city except Canberra saw prices fall in June – with Sydney and Melbourne the biggest falls. And yet in every capital city except Darwin prices are above what they were a year ago – with Sydney and Melbourne having the biggest rises:
Now sure, you might think that these figures look at the past and are thus not reflective of what is happening now. Certainly clearance rates at auctions in Sydney are down on where they were last year, and Melbourne is currently almost an auction-free zone.
But housing finance growth suggests there is little “cooling” about to occur.
Last week the ABS revealed there was a strong rebound in July of mortgage approvals – with the value of owner-occupier housing loans being 18.5% above what it was in July last year:
A sizeable portion of that growth is due to favourable first-home buyer programs in Victoria and Western Australia, but even when they are excluded, there is a clear increase in loans:
This is important because there is a very strong relationship between housing loan growth and what house prices will do in the next six months:
Even in Melbourne this suggest that we are not likely to see house prices fall below what they were a year earlier any time soon:
And yet this all comes at a time when some commentators an analysts are worrying about a “September credit cliff” that could occur when the around 11% of mortgage holders who have deferred their loans for six months will have to start repaying them at the end
of this month.
That would be an economic calamity – given it will coincide with the government’s decision to reduce the jobseeker bonus payment – but it is unlikely, mostly because it is not in the banks’ interest for that to happen.
In July, Apra wrote to banks advising them that prior to the end of September banks “may continue to defer home loan repayments “until the earlier of an aggregate period of deferral totalling ten months; or 31 March 2021”.
Moreover the minutes of the most recent Reserve Bank board meeting did not raise any concern about the issue.
And so it seems likely the housing market will continue to remain buoyant. The main reason for this is the incredibly cheap mortgage rates currently available.
The standard variable rate is now 4.52%, but no one pays that. Even the average discount rate of 3.65% is higher than most are paying:
The RBA estimates that the average rate of all bank owner-occupier loans taken out in June was just 2.68% – down from 3.52% a year ago. (As ever, ring your bank and negotiate a better mortgage rate.)
If you are still fortunate enough to have a job, that makes for a pretty tasty loan rate – it means someone with a $500,000 mortgage can pay around $230 less per month than they would have a year ago.
A couple of months ago I was worried that the value of home loans being taken out was growing while the number of mortgages was falling; but now even the numbers are growing:
And so even in the midst of the deepest recession in nearly 100 years the housing market continues along its merry way.
That is of course good for the economy as a whole – a housing crash will not do anyone any good. But those hoping an economic recession might see some moderation in affordability will likely have to keep waiting.