Property market could be set for a boom and not a bust

Property market boom bust Australia COVID-19 buyers sellers 2020

It is not that long ago that banks were warning that property values could fall by up to 20% and there could be a welter of bad loans as the COVID-19 pandemic cut a swathe through the Australian economy.

Now as we finally begin to enjoy more freedoms after the virus has been brought more under control, there is a growing school of thought that we could be getting set for a boom in property rather than a bust.

Certainly, there are still some headwinds with the eventual level of unemployment uncertain and the phasing down of government income support measures such as JobKeeper and JobSeeker having the potential to cause some market damage.

Cliff becoming less of a problem

However, the much feared “cliff’’ when the home loan holidays were brought to an end is increasingly looking like much less of a problem.

APRA’s September data showed that only 7.4% of home loans remained in holiday mode and information from the banks suggests loan books are returning to normal a little faster than expected as repayments are started again.

Even in the more vulnerable CBD markets of Sydney and Melbourne which have been hit hardest by the lack of international students, the signs are not too bad other than increased rental vacancies and property values in general have been holding up well or increasing, even in the lockdown epicentre of Melbourne.

Commonwealth avoiding forced sales

Commonwealth Bank has pledged not to force the sale of houses owned by customers who were hit hard by the pandemic and in general that echoes the attitude of most of the banks, that they would much rather keep people in houses than cause too much disruption to the property market with a rash of mortgagee sales.

There is other evidence that things might not be as bad as expected.

According to Domain figures, 72% of the properties on sale in Melbourne this past Saturday (14/11) were sold at auction, compared to an almost identical 74% for the same date last year.

Bank loan numbers are way up as new buyers and those who want to refinance are grabbing fixed rates below 2% and variable or honeymoon deals that are better than what they were on.

Banks loan numbers flying

Nearly one in 10 Australian mortgage holders have chosen to refinance their existing mortgages, with Australian Banking Association figures showing that 500,000 home loans, or 8% of all mortgages, have been refinanced in the past year.

Australian Bureau of Statistics data shows that monthly loan commitment numbers for new housing finance in September rose 5.9% compared with the previous corresponding period, with the HomeBuilder grant leading to increased demand for construction loans.

Surveys are also showing that Australians are still very positive towards property as an asset class for living in and for investment.

The cuts in interest rates have increased the borrowing power of many prospective buyers and greatly reduced the gap between home loan repayments and renting costs.

Prices and sentiment still on the rise

CoreLogic data showed that property prices rose in every capital city except lockdown-hit Melbourne the following month while an ME Bank survey showed about two-thirds of Australians (65%) believe prices in their local area will either stay the same or increase over the next year.

The survey showed that 38% of Australians were feeling positive about the property market in the fourth quarter of 2020, compared to 29% in the second.

Those who feel negative about the property market fell from 27% to 20%.

Buyers and sellers on the rise

A third of Australians (34%) are planning to buy property and 12% are planning to sell, up from 29% and 10% respectively when the pandemic was at its worst in the second quarter.

Most of these numbers point to a property boom rather than a bust, although it is always possible that could change as job losses hit and government support wanes.

Even investment housing should be getting a boost, with rental yields starting to look more attractive by the day compared with returns on term deposits and loans now flowing more freely after the banks were given the thumbs up to boost lending by the removal of much of the responsible lending laws.

Finally, the overall economic outlook is improving with Commonwealth saying that the unprecedented level of fiscal and monetary policy stimulus coupled with an expected drawdown in accumulated savings and the further easing of COVID‑related restrictions will support economic growth and job creation.

The bank now expects a faster and larger bounce-back from the pandemic recession, with a fall in GDP of 3.3% in 2020 to be followed by an increase in GDP of 4.2% in 2021 and 3.8% in 2022.

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