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Summary
- In the December quarter, the Australian residential property market rose by 3%, a higher quarterly growth since December 2019.
- Improvement in the economic scenario, Government's stimulus aid, and record-low interest rates have favoured the property market.
- Mortgage lending has soared substantially, raising questions on the risks faced by the major banks.
Homebuyers are flocking the Australian property market, thanks to the new record-low interest rates, relaxed lending norms and the Government's magnanimous wage subsidy program that have together fuelled demand in a matter of months.
According to the Australian Bureau of Statistics (ABS), residential property price edged up by 3% in the December 2020 quarter, showing the most substantial quarterly growth since the December quarter 2019. During the past quarter, a rise in residential property prices was recorded across all capital cities.
Commonwealth Bank of Australia (ASX:CBA) believes that the country's housing market is on the "cusp of a boom", with housing values set to jump in double digits in the next two years. The recent home buyers rush is catapulted by mortgage lending, which was up by more than 20% in December 2020 over the previous corresponding period, as indicated by the Australian Prudential Regulation Authority figures.
Despite the Government's first home buyer scheme, young people face tough competition amid the soaring home prices.
Source: Copyright © 2021 Kalkine Media Pty Ltd.
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Strong growth in quarterly household wealth
Australian house prices are rising at the fastest pace in over three decades. Currently, prices in Sydney, Melbourne, Hobart, Canberra, and Brisbane are all at record highs.
According to the ABS, rising property prices together with stock market recovery has boosted total household wealth, which rose 4.3% (AUD 50.1 billion) in the December 2020 quarter, exhibiting the strongest quarterly growth since December 2009.
The rising property prices have been the key driver for the quarterly growth in household wealth, with residential assets contributing 2.2 per cent points while superannuation balances and directly held shares at 1.4 and 0.5 per cent points.
Head of Finance and Wealth at the ABS, Katherine Keenan, indicated that residential assets' growth was witnessed across both owner-occupier (1.9%) and investor housing (0.4%) in the December quarter.
Moreover, the income growth (1.2%) being more significant than housing debt (1%) has decreased the housing debt to income ratio 139.2 to 139 over the December quarter.
Source: Copyright © 2021 Kalkine Media Pty Ltd.
ALSO READ: Philip Lowe: Interest rate unlikely to change until wage growth improves
How significant is the Mortgage Risk?
The Government-backed First Home Loan Deposit Scheme guaranteeing home loans for eligible first home buyers with a deposit of as little as 5% of the property value seems to have encouraged recent purchases. However, with homebuyers borrowing over 95% of their property values, many major Australian banks may face the rising mortgage risk, as indicated by a report from S&P Global.
However, as questions concerning the need for interventions rose, the prudential regulator has indicated that it is not ready to intercede with no evidence indicating deterioration of lending standards. At the same time, the house prices leapt significantly in the past couple of months.
The ending of JobKeeper on 28 March 2021 further mount pressure on the mortgage borrowers and could force banks to review the default risk. APRA has meanwhile stated that while expiry of repayment deferrals and changes in government stimulus could deteriorate mortgage asset quality. However, continued economic recovery and low-interest rates may partially offset the impacts.
