Housing market revives, home loan lending rates accelerate

Housing market revives, home loan lending rates accelerate

The considerable adverse impact on spending, employment, investment and trade due to coronavirus fears can hit the Australian economy even further if left unchecked.

The growing probability of Australia falling into a recession for the first time in nearly three decades could bring the property market to a standstill as coronavirus continues to lurk the economy’s key sectors, as per industry experts.

Reduction in interest rates, government’s fiscal push and increased demand by China had worked for Australia and its housing market from the financial crisis of 2008-09. However, the picture is way too dissimilar this time. With rising unemployment, falling PMI numbers, sluggish wage growth, struggling stock markets and a rising number of investors moving towards safe-haven assets, Australia is facing a concoction of economic gusts.

Housing values surge in February

As per the latest report of Core Logic for February 2020, housing values in Australia rose by 1.1% over the previous month (January). Sydney and Melbourne accounted for the highest capital gains of 1.7% and 1.2% respectively.

Home values grew 10.9% in Sydney and 10.7% in Melbourne for the twelve months ended February 2020.

The recovery trend has persisted since June 2019, at the back of peak-to-trough fall of 8.4% in the national Index with Sydney and Melbourne bearing the more significant brunt, according to the report.

Low mortgage rates and improved housing credit availability has accelerated buyer demand. Despite persisting irregularity in capital growth across regions and product types, each capital city apart from Darwin has shown an upward movement.

Housing loan commitments accelerated in January

The value of new loan commitments rose 4.6% for housing, in January, in seasonally adjusted terms, as per the data released by ABS.

The value of new loan commitments for investor housing improved by 3.6%. The number of loan commitments to owner-occupier first home buyers increased by 3.2%, and the number of owner-occupier early home buyer loan commitments climbed 25.6% during the month.

Source: ABS

The number of owner occupier first home buyer loan commitments reached a peak in ten years. The figure rose in all the states and territories except Victoria and ACT.

Market analysts said it was evident that first home buyers were fully utilizing the Federal Government’s First home loan deposit scheme.

The value of personal finance fixed-term loan commitment increased 2% in January, following a 4.1% increase in December 2019.

The value of new loan commitment to businesses for construction plummeted 1.3% during January 2020 because of weaker loan commitments for the construction of dwellings, which was down by 23.6% since the peak of January 2018.

After RBA slashed the cash rate to a new record low of 0.5% in the March meeting, first home buyers have even greater incentive to jump into the market.

Weak consumer and business sentiment ahead?

The Westpac- Melbourne Index for consumer sentiment plunged by 3.8% to 91.9, a five year low in March 2020. The fall was led by the stumbling financial markets and deepening coronavirus outbreak.

Consumers were more concerned about the near-term outlook of the economy rather than the longer-term effect, indicating that virus effects are likely to be short-term only.

There were clear signs that consumers are less motivated to spend with a sharp rise in job loss fears as one of the reasons. The ‘time to buy a major household item’ sub-index indicated a substantial 4.3% fall to 111.4, a five-year low reflecting increased uncertainty and rising fears of health risks associated with public places.

As per the survey, the housing sentiment has softened. The ‘time to buy a dwelling’ index fell slightly by 0.3% to 111.8 in March 2020. The study highlighted that fading affordability is becoming more of an issue, with buyer sentiment amongst age groups that drive home buyer activity indicating a drag.

ALSO READ: Business and Consumer sentiment drops amid COVID-19 impact

Westpac-MI index of House Price Expectations Index fell 6.6% to 141.7 in March. However, the index is well above the long-run average of 125. There is an anticipation of prices to rise over the next year but with a slower momentum.

The Westpac Leading Index fell from -0.28% in December to -0.46% in January 2020, indicating that the pace of economic activity relative to trend three to nine months into the future has fallen more in January. The index reflects weak economic momentum will continue in the first half of 2020 with growth remaining below 2% pace during the same time period.

Hence, Westpac’s data shows a fall in consumer confidence and a weaker pace of economic activity that can significantly affect the housing market.

Is the housing market likely to get hit by coronavirus?

RBA has anticipated a further improvement in established housing markets with a rise in the prices for most of the markets. While the demand for the credit by investors has remained subdued, mortgage loan commitments have picked up.

The mortgage rates are now at record lows and stiff competition for borrowers with high credit quality continues to persist.

ALSO READ Australian economy fragile amidst virus uncertainty - Are there any pockets of Opportunities?

The strength in the first home buyer lending is anticipated to continue over February and march as well. However, the data for January doesn’t include the spike in threats from COVID-19, which can severely affect the housing market.

Coronavirus could push Australia into a recession by hampering the economic activity, but its real impact on the residential property market is yet to be seen. If the virus is not contained, it can make buyers hesitant and nervous about attending auctions and buying home. Hence, coronavirus can wreck the property market.

There can also be a possibility of the credit crunch as funding costs are expected to rise in near-term, which can hamper mortgage availability. Another risk is of job cutting recession where there can be few buyers and owners are made to sell their property if they can’t get along.

The slowdown in building approvals, beginning of a construction bust, hit to tourism and education accompanied by bushfires and an economy hit by coronavirus can prove to be a significant setback for the companies as supply is on a shutdown with China.


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