November housing outlook


Housing market conditions have continued to improve throughout October and with transactions once again able to occur throughout Victoria, I would expect that over the coming months the national recovery is likely to gather strength.

In early November, the Reserve Bank (RBA) reduced the cash rate to a new record low of 0.1%. While existing mortgage holders have largely missed out on any rate reductions, new borrowers willing to fix their mortgage rates are set to be offered reductions. I anticipate that these new record-low mortgage rates will create additional demand for housing.

Housing finance data for September 2020 published early this month, also indicates that demand for housing has rebounded. Over the month there was a historic high of $35.5 billion in lending. Importantly, all categories of lending lifted over the month, with new investor lending rising 5.2%, new owner-occupier lending to non-first home buyers rose 6.2% to a new historic high, new owner-occupier lending to first home buyers rose 5.6% and refinances increased by 15.0%. It is yet more evidence that government programs and interest rate stimulus is leading to increased demand for mortgages.

September 2020 also appears to have been a turning point for building approvals, with the 15,827 approvals over the month representing a 15.4% monthly increase and the highest monthly number of approvals since February 2020, before the pandemic hit. Both houses and units recorded a bounce in approvals over the month, with 11.1% and 25.0% increases respectively. It is important to note that unit approvals tend to be quite volatile; however, the 10,466 house approvals over the month was the highest number since April 2018.

The latest monthly data from the Australian Prudential Regulation Authority (APRA) for September 2020 showed that the share of mortgages on deferral was 7% of the total. While this is still significant, it has fallen from 9% a month earlier and a peak of 11% in May 2020. With Victoria’s economy reopening in October, I would expect that we will see a further decline in mortgage deferrals over the coming months.

Property prices

As the pandemic hit, there were certainly some doomsday predictions for property prices; however, there has been very little evidence of such predictions playing out.

While there were some declines in prices over the first few months of the pandemic, over the past couple of months we have seen prices shift marginally higher across all capital cities with the strongest growth in Adelaide, Darwin, Sydney and Melbourne seeing relatively weaker price growth.

With the recent reduction in borrowing costs and restrictions on how people can spend their income, I expect that more of this money will be flowing into the property market, which in turn will result in further increases in property prices.

Transaction volumes

Over the first 45 weeks of 2020, the number of preliminary sales, as recorded weekly by, was 12.6% higher than at the same time last year. Tasmania is the only state with fewer preliminary sales than a year ago; this is despite the first recession in a generation and all states having a lockdown, with Victoria having had two.

While vacant land is a small proportion of all preliminary sales, it has seen some very strong results throughout this year. Cumulative vacant land sales in 2020 are 59.0% higher than they were a year ago and are up in all states, with Western Australia seeing the largest overall increase (93.2%).

These data highlight that government stimulus and low borrowing costs are proving extremely stimulatory for the housing market.

Enquiries for established properties

The volume of email enquiries increased by a further 19.4% in October to reach a new historic high. Email enquiries in October 2020 were 64.5% higher than at the same time last year. While enquiries have potentially become more prevalent due to lockdowns, it is clear that this is yet another indicator highlighting the increasing interest in properties for sale.

Houses are overwhelmingly the largest source of enquiries and their share of total enquiries has increased over the month. Buyers are the largest source of enquiries and investors the smallest, while over the month, the share of enquiries from investors was largely unchanged. Enquiries from first home buyers fell, while buyer enquiries increased.

Weekly search volumes

Weekly search volumes have eased a little over recent weeks; however, there have been some public holidays across the country during this time, most notably in Victoria. Both for-sale and rental-search volumes remain substantially higher than they were a year ago, highlighting that there is a much higher level of interest in residential property than at the same time last year.

Views per listing

The average number of views per for-sale listing nationally increased by 15.7% over the month of October and they were 49.0% higher than a year ago and reached a new historic high. Northern Territory was the only state in which views per for sale listing fell over the month, while they reached historic highs in New South Wales, Victoria, Queensland, South Australia and Western Australia.

Rental views per listing fell by -3.4% over the month and they only increased in Queensland, South Australia and the ACT. Compared to views per listing a year ago, they were 0.7% higher this year in these states. Victoria was the only state in which they were lower, having fallen by -37.6% with double-digit, year-on-year increases in all other states except Tasmania.

New homes sector

It isn’t just the established housing sector responding well to low borrowing costs and government stimulus; the new housing sector is also seeing high levels of interest.

In October 2020, the volume of enquiries for new apartment, land estate and retirement projects was the second-highest monthly volume on record. The overall volume increased by 18.0% over the month to 77.0% higher than it was in October 2019.

HomeBuilder remains the main driving force between the swell in enquiries for new homes, with the monthly volume of enquiries between June and October 2020 higher in each of those months than it has been any month prior to June 2020.

The main industry criticism of HomeBuilder is that it is not really helping new apartments too much, while it has been extremely effective for new homes and the data also shows this.

Apartment enquiries in October 2020 were 25.6% higher than the previous year, while land estate enquiries were up 144.9% and retirement up 59.5%.

With HomeBuilder set to finish at the end of the year, developers are making hay while the sun shines. However, 2021 could be much more challenging absent of any further stimulus given that so much demand has been pulled forward to 2020, particularly if international borders remain shut throughout most of next year.

Where to from here?

The previous comments have highlighted a fairly rosy picture for the housing market, which is certainly the case at the moment; however, that does not mean there aren’t some potential challenges in 2021.

HomeBuilder is providing some very effective stimulus for new houses and established vacant land, but it is due to expire at the end of this year. This stimulus, along with other first home buyer incentives, has been effective and pulled forward a lot of first home buyer demand into 2020 that may have otherwise occurred in 2021 or thereafter. With first home buyer demand potentially exhausted next year, international border closures likely to still be in place and low participation from investors, the new housing sector may be challenged in 2021 absent some further stimulus measures. Population growth and household formation contributes to housing demand and in new housing in particular, non-citizen purchasers are a key source of demand.

The shut borders are also likely to start having more of an impact on rental markets in 2021 as many leases come up for renewal in the first quarter of each year. We’re already seeing reductions in rental rates in inner-city markets and those around major universities, and they are likely to continue as rental demand remains reduced. For owners of investment properties in these markets, they may consider selling their property but even if they do not, the rental income they receive is likely to be reduced.

The other challenge the market faces is what will happen as mortgage holidays end. While banks have to-date been quite pragmatic, and they can afford to be when borrowing costs are so low, lenders are going to have to either restart repayments on their mortgage, or offload some of their housing assets over the coming months and into 2021. Depending on where these properties are and when they become available for sale, it could create some localised market weakness; however, it should be noted that there is little incentive or requirement for lenders to flood the market with forced sales.

While there are some potential challenges for the housing market in 2021, I believe that the historic-low borrowing costs and the likelihood they remain at these levels for a number of years will more than likely offset any of these challenges. That’s not to say there won’t potentially be some localised issues; however, I believe the low cost of borrowing and restrictions on how people can spend more broadly, will increase demand for properties and likely push prices higher.

I also would not be surprised to see further stimulus for the new housing sector from federal and state governments over the coming months as they endeavour to support this sector while international borders remain closed.

Homeowners who are unsure about the state of the market or their finances 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 hours reduced, or if there are better mortgage rates available to them.