House prices have continued to rise nationally in the face of the coronavirus-driven recession.
Property analysts no longer expect 10 to 20 per cent declines in house prices, and expect that if the virus remains under control in Australia prices will rise more by early next year.
After gains in October, CoreLogic’s national index recorded a second consecutive monthly rise in November, with dwelling values up 0.8 per cent over the month and 3.1 per cent over the year.
CoreLogic’s head of residential research Eliza Owen said this showed a “new recovery trend” following a 2.1 per cent drop in Australian home values between April and September.
“Sydney, Melbourne and Brisbane have risen by less than 1 per cent over the month, while all the smaller capital cities have risen by more than 1 per cent.”
S&P said payment deferrals were masking COVID-19’s true impact on mortgage arrears, but arrears related to COVID-19 shutdowns were beginning to surface.
It also warned Australia’s household debt-to-income levels could rise as borrowers take advantage of cheap debt to buy or upgrade their properties.
There’s also been a major deterioration in rental markets, especially in the inner cities of Sydney and Melbourne, where those markets rely heavily on international students and people in the food and accommodation sectors who have lost their jobs during the crisis.
While house values have driven gains in the combined capitals index over the past three months (rising 1.1 per cent), capital city unit values fell by 0.6 per cent over the same period.
Melbourne’s unit market is the exception. Unit values there recorded a smaller-than-expected decline throughout the COVID period so far, and showed a more substantial recovery trend over recent months.
“Investors are finding it difficult to get tenants in inner city [areas],” Ms Owen said.
“Unit rents have fallen almost 8 per cent since the onset of the pandemic. And in Sydney they’ve fallen almost 7 per cent.”
An improvement in rental conditions depends largely on international borders reopening.
“We know about 80 per cent of people when they first come to Australia from overseas are renters — a lot of them being international students,” Ms Owen added.
Given Corelogic is among the property analysts and economists who incorrectly predicted house prices would fall by 10 to 20 per cent, Ms Owen was reluctant to put a figure on future house price rises.
But she said house prices would rise through early next year off the back of low interest rates, higher levels of consumer sentiment, and government stimulus measures.
“Were likely to see increases over 2021 — I don’t know exactly what the number is going to be,” Ms Owen said.
“It will be tempered by things like whether there’s another spike in COVID-19 cases, how quickly we see the distribution of a vaccine, how trade relations play out in China, and how quickly we can get people back to work.”
The RBA has been modelling 50 per cent theoretical house price falls, and has said that Australia’s economic recovery will be “unpredictable and uneven”.
AMP Capital chief economist Shane Oliver said the property market had held up “a lot better than” he anticipated six months ago when he estimated falls of up to 20 per cent.
There appears to be a bit of a ‘fear of missing out’ creeping into some markets – particularly outside of Melbourne and Sydney,” Dr Oliver said.
He predicted that at the current rate of increase, average capital city dwelling prices would surpass their September 2017 record high by April next year.
But the collapse in immigration could be a problem, particularly in inner city areas of Melbourne and Sydney.
“It remains hard to see that the reversal in net immigration from around 240,000 people per annum to an expected net outflow of people this financial year (-70,000) and next (-20,000) won’t have a significant impact,” Dr Oliver said.
There are, however, a number of data indicators pointing to a good time for sellers.
The stock on the housing market is about 20 per cent lower than where it was this time last year, and 24 per cent below the five-year average.
The number of settled sales has held reasonably firm since July, with rising sales activity outside Victoria offsetting the sharp drop in the state’s home sales caused by the recent lockdown period.
Nationally, CoreLogic’s settled sales estimates over the past three months were about 1 per cent higher than the same period last year, due to strong performance in regional areas.
Auction markets have strengthened, with November clearance rates holding at about 70 per cent, well above the decade average of 61 per cent.
“Selling time is going down, the amount vendors have to discount is shrinking as well — so the indicators are that it’s more of a seller’s market,” Ms Owen said.Regional markets are showing stronger growth relative to the capital cities. They were 1.4 per cent higher in November (compared with a 0.7 per cent rise in capital city values).
NAB home ownership executive Andy Kerr said November demand for home loans was stronger than he had seen for more than two years.
“Applications over the past six weeks are up more than 25 per cent against the prior six weeks,” he said.
“We’re currently forecasting property price growth of upwards of 5 per cent in each of the next two years, with apartment prices likely to lag house price growth.”
The construction sector is also seeing strong activity. Data released by the Australian Bureau of Statistics (ABS) showed building approvals rose for the fourth consecutive month in October.
The total number of dwellings approved rose 3.8 per cent in October (in seasonally adjusted terms) — the highest recorded level since February 2000.
S&P’s report said mortgage defaults had remained contained due to rate cuts and government spending.
The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages decreased to 1.12 per cent in September from 1.17 per cent a month earlier.
But mortgage payment deferrals were masking COVID-19’s true impact on mortgage arrears.
“Loans that have been granted payment holidays due to COVID-19 mostly are not included among the loans in arrears,” the report said.
“This is because most lenders are not including loans under COVID-19 hardship arrangements in their traditional arrears reporting during mortgage-relief periods.”
It said problems could surface by early next year.
“We expect debt-serviceability pressures to begin to surface in [the first quarter of] 2021 as borrowers exit mortgage-deferral arrangements and fiscal stimulus measures taper off,” the report said.
Although arrears are likely to rise in the months ahead, it would be off a low level, the report said.
The report said arrears in non-metropolitan areas had been declining at a faster rate than those in metropolitan areas during the pandemic.
“Around 25 per cent of loans under mortgage deferrals in the sector are in non-metropolitan areas,” it said.
“This is disproportionately lower than the 30 per cent exposure to non-metropolitan areas.”
