Paul is a co-founder and director of Debuilt Property. Paul has extensive experience in construction, project management, development management and asset management.
What is the current outlook of the housing market?
Australia’s house prices have increased a further 1.6% in July which takes national house prices 14.1% higher than they were at the beginning of 2021 and 16.1% higher than they were a year ago.
However, there are possible indications that the supercharged property market is losing steam.
The monthly rate of growth has been on the decline since March, when prices rose 2.8%.
(CoreLogic, 2021)
Lending
ABS data confirms that home loan commitments fell 1.6% in June (seasonally adjusted), indicating a slight deceleration. The small decline follows a period of rapid growth from Jul 2020 to Feb 2021 in which the value of new loan commitments rose by 150%. This would seem to indicate that the booming home loan market may have peaked after a year long climb where loan commitments hit record highs and lifted almost $10 billion a month above pre-pandemic levels.
The ABS statistics also revealed that during June, owner occupier loan commitments fell by 2.5%, the largest fall seen since May 2020. Despite the easing of growth, owner occupier commitments remained 76% higher compared to a year ago and 64% higher than pre-Covid-19 in Feb 2020.
A large contributor of the reduction in loan commitments by owner occupiers was a 17% fall in commitments for construction of new dwellings, likely due to the winding down of the HomeBuilder program which ended in April. In addition to this, there was no growth in lending for the purchase of existing dwellings.
The reduction in uptake of loan commitments has also been attributed to economic sentiment being strained as numerous States go in and out of lockdown. With Sydney, the biggest contributor to new loan commitments, in an extended lockdown, there could be an even greater cause for economic concern.
These figures demonstrate that whilst the property market remains strong, there has been a slowdown in growth.
With interest rates being held at a record low for the foreseeable future, it could be predicted that such cheap debt would continue to prop up demand. However, despite low rates previously being a key factor in demand, worsening affordability has diminished people’s capability to purchase. With housing values having risen significantly faster than incomes, it is taking prospective buyers longer to save for a deposit and a larger portion of their income to do so.
Dwelling approvals
For a third consecutive month the number of dwelling approvals fell, with June recording a 6.7% decrease. The fall in the total number of dwellings approved in June was driven by an 11.8% fall in private sector houses after they reached a record high in April. Attached housing approvals however grew by 4%.
By state, the number of dwelling approvals fell in Western Australia (-30.5%), Queensland (-18.4%), Tasmania (-14.9%) and New South Wales (-12.7%). Dwelling approvals rose in Victoria (12.8%) and South Australia (8.6%).
The fading effect of HomeBuilder will mean that house approval numbers will continue to ease. Labour and material shortages are also likely to detrimentally impact construction of new homes.
Therefore, with less housing coming on to the market due to a reduction in approvals and longer construction periods, an undersupply of housing is likely to contribute to maintaining house price growth.
Growth – but how much?
While many factors affect property values, key drivers of growth include supply and demand ratios, interest rates and consumer confidence. With the RBA seemingly unlikely to change its historically low interest rates until 2024, with many people seeming more positive about Australia’s economic outlook post vaccine, and with some supply challenges, it is likely that house prices will still continue to rise.
The growth that we have seen over the past 12 months was unpredicted and unprecedented, causing shock to many in the industry. Fiscal and monetary policy helped sustain the economy and house prices skyrocketed.
However, it appears that the bull run market might be tapering off which in turn will lead to a stabilisation of house values.
If we look forward:
The government is unlikely to fund another HomeBuilder.
There is increased nervousness due to repeated lockdowns combined with the lack of government safety nets previously in place such as JobKeeper.
The recommencement of immigration due to border restrictions seems to be a long way off, consequently reducing the likelihood of a wave of demand for new housing over the next few years.
Increasingly tighter lending standards.
The current outlook is that the market is expected to remain firm, being supported by low interest rates, government support and steady demand. However, the growth is unlikely to continue at the aggressive pace we have seen over the past 12 months. Despite it being a turbulent 18 months, our economy has proven resilient, and it is unlikely that we will be falling off the ‘fiscal cliff’. However, the softening of the rapidly rising house prices we have seen is a good indication that trends are normalizing.