June housing outlook
By Cameron Kusher, Executive Manager – Economic Research at REA Group
The latest property price data shows that price growth came to a halt in May 2020. The decline in prices is of little surprise given that it accompanies a significant reduction in transaction volumes and a significant reduction in the number of new properties being advertised for sale. While prices have fallen, I continue to expect that across the whole market the magnitude of price falls is likely to be moderate.
All states and territories are now in a position whereby open for inspections and onsite auctions are allowed; however, in the main there remain some restrictions on the number of attendees. Since the reopening of onsite auctions and inspections we have also seen an increase in the number of new listings being advertised on realestate.com.au, albeit they remain low and well below the volumes we saw before COVID-19. We have also seen a jump in auction clearance rates; however, the volume of properties being taken to auction remains low although it is increasing each week.
Another positive sign for the housing market has been the ongoing increase in consumer confidence. Over each of the past nine weeks, consumer confidence has increased and it has now almost fully recovered from the slump recorded as the economy went into COVID-19-related lockdown.
Confidence is so important for the residential property sector; given that for many people, purchasing a property is the single largest expenditure they will ever make, they want to be confident to do that.
Despite some positive signs, there are still many unknowns that are likely to result in caution from buyers and sellers. While confidence is recovering, Australia still hasn’t eliminated COVID-19 so there is always a chance there may be a second wave and we have to retreat back into lockdown. Furthermore, there remains a lot of uncertainty around employment; the latest data showed unemployment rising one per cent in a month. However, the JobKeeper scheme and a significant fall in employment participation shielded the economy from a much larger increase in the unemployment rate. JobKeeper and mortgage holidays expire in late September and upon their expiry, we may see a spike in the unemployment rate (if the economy isn’t yet rebounding) as well as potential forced sales in the property market as people still can’t afford to repay their mortgage.
While the signs for the market are much more positive than they have been, transactions and new listings increasing and consumer confidence rebounding, the recovery in the housing market is still anticipated to be a fairly slow one at this stage with some potential challenges to come later this year.
Despite these potential challenges, people are maintaining a strong interest in property, with realestate.com.au recording a record unique audience in April 2020.
Over the past month, search volumes for properties for sale and rent have continued to trend higher and are significantly higher than they were at the same time last year. The data highlights that although consumer confidence remains below average and the unemployment rate has risen, Australians are maintaining a strong interest in the property market.
The number of new properties listed for sale on realestate.com.au has trended higher since Prime Minister Scott Morrison announced his three-step plan for reopening the economy in early May. Of course, one of the first steps was reopening open for inspections and onsite auctions, and that has clearly been positive for the residential property market. Although new listings are rising they remain lower than last year and are a long way from volumes before COVID-19 lockdowns were enacted.
HomeBuilder stimulus package
Earlier this month the federal government announced their HomeBuilder package. HomeBuilder offers grants of $25,000 to anyone who builds a new home or undertakes a significant renovation (greater than $150,000, up to $750,000 where the existing value is less than $1.5 million) where the contract is signed between 4 June 2020 and 31 December 2020 and the project commences within three months of signing the contract.
Accessibility to the scheme is limited to singles earning less than $125,000 and couples earning less than $200,000 (based on their 201819 tax return). If building a new home, the property value (land and build cost) must not exceed $750,000.
Knockdown rebuilds also have access to this scheme as long as the pre-knockdown value is less than $1.5 million and they are spending between $150,000 to $750,000.
While the industry has welcomed the package, it seems that it will largely benefit first home buyers, being a larger dollar-value stimulus than that which was recorded during the Global Financial Crisis. Furthermore, first home buyers can still access any federal or state-based assistance or incentives. Keep in mind, however, that younger workers are the ones most likely to have been stood down from work, have lost their jobs or are working reduced hours.
The scheme is also likely to be those living in their first or second home and wishing to build their own home; however, the price cap of $750,000 could be problematic, particularly in Sydney.
It may also be attractive for some, depending on the area of the city in which they live, to undertake a knockdown rebuild.
The renovation incentives seem likely to be less successful. Spending at least $150,000 means a major renovation, one that takes time to plan and most likely needs development/building approval. These approvals can be notoriously slow through local councils. Furthermore, there probably aren’t too many singles earning less than $120,000 or couples earning under $200,000 looking to spend at least $150,000 on a renovation in the middle of the first recession in almost 30 years.
With onsite inspections and auctions back, and consumer confidence continuing to recover, the outlook is not as bleak as it has been over recent months. The federal government’s HomeBuilder program could have been better targeted, but it is still likely to pull forward some demand from first home buyers and that should also help assist with improved housing market conditions. Of course, the other major stimulus for the housing market is the record-low borrowing cost, with little prospect of meaningful increases over the coming few years.
While this may all seem positive, we are still in the middle of a global health pandemic and a local recession; those two factors are likely to result in much more caution from potential buyers and sellers, leading to a reduced number of property transactions.
As the economy opens back up and people return to work, property as a sector remains well placed to rebound. The combination of the momentum it enjoyed going into COVID-19 and the stimulus of historic low interest rates, which are expected to remain at these lows for several years, is likely to be positive for the recovery of the sector. The main challenge to the recovery at this point will be how quickly the economy can repair and what will happen to the unemployed in September when JobKeeper, JobSeeker and mortgage holiday periods expire.
In the meantime, homeowners should be speaking to their mortgage advisers about the best way to manage through COVID-19. Whether that be applying for a mortgage holiday if they lose their job or have their hours reduced, or if there are better mortgage rates available to them.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.