By Cameron Kusher, Executive Manager – Economic Research at REA Group
The housing market has continued to strengthen over the past month as COVID-19 restrictions have gradually eased across most states and territories, with the one-week lockdown in SA the obvious exception.
The Reserve Bank (RBA) made no change to official interest rates during their final meeting of the year, keeping rates on hold at 0.1%. Importantly, as official interest rates have been cut, most lenders have only passed on these reductions to fixed-rate borrowers, with variable rates largely unchanged.
The latest housing finance data for October 2020 showed that the overall value of lending fell by -2.2%, from $35.5 billion to $34.8 billion. Although overall lending was lower over the month, it was driven by a -7.1% decline in refinance lending, while new lending increased by 0.7%. Looking at the categories of new lending, investor lending rose by 0.3% over the month, first home buyer lending increased by 3.1% and reached its highest value on record, while owner-occupier and non-first home buyer lending pulled back by -0.3% from its record-high in September 2020. It’s pretty clear that there is currently significant momentum in demand for mortgages and with official interest rates reduced further in November, I would expect a further surge in mortgage demand over the coming months.
The impact of HomeBuilder is becoming more obvious in the monthly building approvals data, too. The number of building approvals in October 2020 increased by 3.8% over the month, to be 14.3% higher over the past year. Both house (3.2%) and unit (5.1%) approvals have recorded an increase over the past month, with 10,936 house approvals and 5,648 unit approvals. House approvals in October reached their highest volume since February 2000, highlighting strong demand that has been assisted by historic low borrowing costs, and federal and state government stimuli for new housing.
The Australian Prudential Regulation Authority (APRA) has also published their October 2020 update on mortgage deferrals, and it showed that at the end of the month, 3.9% of the value of all mortgages were still deferred. To put this result in context, it was down from 7% in September and a peak of 10% in June 2020. As restrictions continue to ease it seems likely that the share of mortgages will continue to fall, and the potential for a large mortgage deferral cliff seems to be fading each month.
At the end of 2020, the housing market has substantial momentum and I fully expect this momentum will be carried into early 2021 and potentially longer than that. The combination of ongoing restrictions on individuals’ expenditure, government stimuli, recent tax cuts and the lowest borrowing costs on record are likely to be positive for residential property.
Let’s look at what is happening across each of the states and territories and what the outlook is for next year.
As at the end of November, dwelling prices in Sydney have increased over the month (0.3%) and quarter (1.1%) and were 2.5% higher year-on-year. It was a similar story in regional NSW, with price increases over the month (0.4%), quarter (2.0%) and year (6.6%).
Across the state, the number of weekly preliminary private treaty property sales is 16.7% higher so far this year relative to last year. The state has also seen a 53.7% year-on-year increase in the number of views per property listing, with the change typically much stronger in regional markets as opposed to capital cities.
The average days on site for properties that sell is also reducing across the state and was recorded at 33 days in November 2020, which was marginally lower than the previous year (34 days) and the lowest days on site in March 2020 (32 days).
It’s clear that the housing market is in recovery mode in NSW and we expect this recovery to continue in 2021. Detached houses are likely to generally fare better than units, particularly inner-city units, which are likely to remain less desirable if international borders remain closed and the resulting impact on rental demand.
Despite two lockdowns during 2021, Melbourne dwelling prices have now increased over the month (0.2%), quarter (0.9%) and year (0.8%). The regional Victoria market is currently seeing stronger price growth of 0.2% over the month, 1.3% over the quarter and 5.3% year-on-year.
While the market has been hampered by lockdowns, weekly preliminary private treaty sales are 5.1% higher so far this year compared to the same period last year. The state has also seen a 31.4% rise in for sale views per listing over the year; however, growth has been minimal in Melbourne but very strong in regional Victoria.
After it peaked at 74 days in September, average days on site for properties sold fell to 34 days in November 2020, which was similar to the 33 days a year ago.
Overall, the Melbourne economy is likely to be more challenged in its recovery than elsewhere because of the longer lockdown; however, it is already clear that demand for housing is rebounding quite rapidly and I expect this will continue into 2021, with prices continuing to rise due to very low borrowing costs and strong demand.
Property prices in Brisbane were unchanged over the month of November 2020, but 0.3% higher over the past three months and 2.5% higher over the past year. In regional Queensland, prices were 0.2% higher over the month, 0.9% higher over the quarter and 4.5% higher year-on-year.
The preliminary number of private treaty sales throughout Queensland over the first 49 weeks of this year is 20.4% higher than over the same period last year. On a views-per-listing basis there has also been a big increase in interest in Queensland property, having risen by 70.0% year-on-year with strong increases throughout most parts of the state.
Properties that sold in November 2020 were on site for an average of 67 days compared to 69 days at the same time a year ago.
Interest in Queensland properties has grown strongly over the past year and I expect this rise in demand will translate into more sales and further price increases in 2021.
Dwelling prices in Adelaide rose by 0.2% in November to be 1.0% higher over the past three months and 3.2% higher year-on-year. There has been similar growth in regional SA, with no change over the month, 0.5% growth over the quarter and prices 3.4% higher year-on-year.
The number of preliminary private treaty sales over the first 49 weeks of this year is 12.4% higher than over the same period last year. Meanwhile, the number of views per property listed for sale has increased by 52.3% compared to a year ago, with large increases in Adelaide but larger increases on low volumes in regional SA.
Properties in SA that were listed on site and sold had typically been on site for 54 days in November 2020, which was down from a peak of 82 days in July but was slightly longer than the 50 days at the same time a year ago.
We’re seeing demand for properties increasing throughout SA and the low cost of borrowing coupled with the rise in demand is likely to result in price increases over the coming months.
After many years of weak housing conditions, dwelling prices are rising in Perth, unchanged over the month but 0.5% higher over the quarter and 2.4% higher year-on-year. Price growth has been even stronger in regional WA, with prices 0.4% higher over the month, 2.0% higher over the quarter and 5.1% higher year-on-year.
Over the first 49 weeks of this year, weekly preliminary sales in WA are 27.3% higher than they were 12 months ago, the largest increase of any state. The average days on site is also trending lower, down from 85 days a year ago to 79 days in November 2020.
The average views per listing has increased quite dramatically over the past year, up 67.6% across the state. Regional areas have seen stronger year-on-year growth in views per listing than the capital city, with the inner areas of Perth the laggard in terms of growth.
The WA housing market has seen very little price growth over the past decade; however, we are already seeing strong improvement in most indicators and I expect we will see this continue over 2021 with the lowest borrowing costs on record.
Property prices in Hobart rose over the month (0.2%), quarter (0.9%) and year (6.4%), while it was a similar story in regional Tasmania with prices 0.4% higher over the month, 1.4% higher over the quarter and 7.3% higher year-on-year.
Tasmania is the only state in which preliminary weekly sales are lower so far this year than they were a year ago, down -3.6%. With borders shut for much of this year this isn’t really a surprise given so much demand for Tasmanian property comes from mainland Australia.
In November 2020, properties on site typically took 45 days to sell, which is the same as in November 2019 but down from 77 days in June 2020. Although sales are lower so far this year, Tasmania receives the highest views per listing for properties for sale and it has increased by a further 45.2% over the past year.
Although property prices in Tasmania have seen significant rises over recent years, the reopening of borders, adoption of remote working and historic low borrowing costs are likely to result in further price rises next year.
Following many years of price falls, prices in NT are starting to rise. Darwin prices rose 1.1% over the past month to be 4.5% higher over the quarter and 0.9% higher year-on-year, while in regional NT prices were unchanged in November, 0.7% higher over the quarter and 7.2% higher year-on-year.
Weekly sales volumes over the first 49 weeks of the year for the territory were 11.6% higher than at the same time last year. The average days on site for NT properties sold in November 2020 was 85 days, which is unchanged from a year ago.
While properties for sale in NT receive relatively fewer views per listing than any other territory or state, the number of views has risen by 33.2% over the past year. The growth in views per listing has been much stronger over the year in Darwin (78.9%) than it has been in regional areas (16.7%).
From here, we expect that property prices in NT will continue to rise throughout the coming year.
Property prices in Canberra rose 0.5% in November 2020 and were 2.5% higher over the past three months and 5.6% higher year-on-year.
Preliminary weekly sale counts so far throughout 2020 are 10.2% higher than they were over the same period last year, while the average days on site for a property sold has fallen to 25 days in November 2020, which is the lowest days on site any time over the past two years and down from 30 days a year ago.
There has been strong interest in Canberra property over the past year, with the average number of views per listing rising by 92.7% over the period, the largest increase of any state or territory.
With the low borrowing costs set to continue, I fully expect we will see further property price increases in Canberra in 2021.