As we come to the end of the first quarter of 2021, improving economic conditions; supported by economic stimulus and effective containment and management of the COVID-19 health response have served as a strong catalyst for improvements in consumer sentiment.
With record low-interest rates and strong government incentives on offer, property markets have observed a sharp surge in buyer activities which has placed strong upward pressure on prices across the country.
According to RP Data, in the month leading up to February 28th 2021, the 5 capital city aggregate for housing values increased by 2.34% for houses. Conversely, units declined 0.29% over the same period [1].
What Does The Data Reveal?
When looking at this data, a strong correlation is observed in the volume of sales of detached houses particular to owner-occupiers and first home buyers.
Lending figures for January, released by the ABS, show a surge in lending for both the purchase of existing dwellings and the construction of new ones is enabling the property boom.
A 10.9% jump in home loans for owner-occupiers led to a 10.5% rise in housing finance.
First Home Buyer Activity.
First home buyers played a dominant role, with a 71% increase in loans to this group since January 2020.
The 16,664 first home buyers taking out loans in January was the highest number since May 2009, with programs such as the First Home Loan Deposit Scheme enticing many into the market.
The surge is likely attributed to a combination of factors such as the availability of government incentives and the changing workplace dynamic stemming from the greater amount of time spent living and working from home which has spurred a greater desire for housing that offers more space or a better lifestyle.
What Could Slow Price Growth?
Low-interest rates and the availability of government incentives have fuelled price growth and it is unlikely that the upward trajectory will ease in the short term however, other factors may a role in the sustainability of growth in the medium to longer term.
First Home Buyers
First home buyers armed with stamp-duty discounts and cheap debt have surged into the market, reaching the highest levels since the GFC. At the same time, there has been little in the way of wage growth over the past decade.
This raises the affordability problem, with first-time buyers now taking on near-peak levels of debt, and deposit affordability remaining an issue. The average first-home loan was $429,950 in January, about $1000 less than the 2019 peak but double the levels are seen in 2004.
On perusal of the RBA minutes for the March meeting on monetary policy, we can see a glimpse of what may be to come in the future [2]:
"Price growth and overall housing conditions had been especially strong in the detached housing sector in outer metropolitan and regional areas. This had partly reflected strong demand from owner-occupiers seeking more space and from first-home buyers”
“Members concurred that housing market conditions warranted close monitoring in the period ahead. In particular, it was important that lending standards remain sound in an environment of rising housing prices and low-interest rates.”
Should this scenario transpire, it would be reasonable to expect changes to prudential lending standards similar to those observed in 2015 and 2017 in an effort to curb growth.
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Bradley Wearne - General Manager and Head of Research at Meridian Australia
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.
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