Why didn’t Australia’s Property Market Crash?

“I stumbled across the following article this morning. As you’ll soon see, statistical data and expert analysis clearly illustrates what I’ve been saying all along in relation to the Australian Property Market – IT’S NOT GOING TO CRASH despite all the widespread doom and gloom that was incorrectly portrayed by mainstream media due to Covid. 

I’ve said it before and I’ll say it again – ‘Low-cost debt’ and ‘Mortgage repayment deferrals’, in turn leading to ‘Low-stock levels’, has been instrumental in cushioning the blow – Angelo Lambropoulos”


Eliza Owen, head of research at CoreLogic, has released an interesting report explaining why Australian property values have held up so well in the face of the COVID-19 pandemic:

2020 has been a devastating year for many households and small businesses. As Australia moves through its first recession in over 28 years, ABS payroll data suggests wages are down 4.3% between Australia’s 100th case of COVID-19 on March 14, and October 31st. In the same period, payroll jobs decreased 3.0% At the onset of the pandemic, consensus seemed to be building that the national decline in property values could reach 10%, with worst-case scenarios suggesting prices could fall by as much as a third.

But between March and October, Australian home values have fallen just 1.7%. In fact, October marked a 0.4% increase in values, with the trend over November suggesting a further acceleration in growth.

Although housing values are once again rising, it’s important to highlight that Melbourne housing values remain around 5.4% below their recent high, and Sydney housing values are still 4.8% below their 2017 peak. Values in Perth and Darwin are more than 20% below their 2014 peaks, while the remaining capital cities have seen housing values move to new record highs through the COVID period.

As Australia enters the start of a gradual recovery from the largest economic downturn since the 1930’s, how can this be reconciled with such a mild downturn in property values? A few factors that may explain the relative stability in housing, at a high level, are put forward below.

Low-cost debt

The cost of borrowing money is probably one of the most important factors influencing property values. Over 2020, the RBA have reduced the official cash rate target (which influences lending rates) by 65 basis points, to 0.1%.

In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8% increase in property values over the following two years.

In fact, it is not uncommon for housing markets to increase in value during negative economic shocks, or periods of rising unemployment. This is because the monetary response to rising unemployment and falling consumption, is often to lower the price of debt. Those that still have a secure income during these shocks may be more inclined to borrow and buy as a result.

Mortgage repayment deferrals

The Australian household debt to income ratio is an eye-watering 185%. This high level of debt is a vulnerability amid severe economic contractions, because sudden job loss reduces the ability of households to service this debt. In the April Financial Stability Review, the RBA highlighted that each 100 basis point increase in the unemployment rate could lead to an 80 basis point increase in the portion of mortgages in arrears.

In the case of large-scale mortgage debt, ongoing arrears can lead to forced sales, which in turn fuel risks associated with higher supply in the housing market, lowers values, and higher rates of negative equity, where the borrower sells their property for less than what they owe the bank.

Mortgage repayment deferrals have acted as a temporary stopper on this vicious cycle. Those that did not want to sell amid economic uncertainty due to an inability to repay their mortgage, did not have to. This may have contributed to very low levels of stock throughout 2020, which only reduced further amid stage 2 restrictions from March. The low level of stock on market likely helped to insulate dwelling values during this time.

The April Financial Stability Review also noted that over half of owner-occupiers with a mortgage had at least 3 months of prepayments on their mortgage. Indebted households are further supported by the record-low cash rate, which is lowering the cost of servicing debt as incomes have fallen.

APRA data on loan deferrals show borrowers are becoming less dependent on these policies. As jobs and incomes slowly recover across the economy, the portion of housing loans deferred has come down from a peak of 11% in May, to 7% in September. More recent updates from lenders indicate the number of mortgages on deferral arrangements fell sharply through October and November.

Continued leniency for mortgage repayment deferral, particularly for owner-occupiers, is in the interest of the banking sector, and extends the ‘bridge to recovery’ as the economy gradually recovers.

It is worth noting indebted households do ultimately pay for mortgage repayment ‘holidays’. With unpaid interest capitalising on their loans, these households will be further indebted down the line, which may constrain their future consumption, particularly in the event of another shock to the economy. For now, however, it is a policy which has helped to stave off further deterioration in housing markets.

This economic downturn was different

A third, important factor that may have insulated parts of the housing market is the specific nature of the economic downturn. Severe job loss across hospitality, tourism and the arts resulted from the purposeful slowdown of ‘social consumption’.

The chart above shows that those working in food and accommodation and arts and recreation, have seen devastating job loss through the pandemic. However, those working in this industry are less likely to have mortgage debt.

The decline of employment in these sectors likely contributed to severe pockets of rental income decline, but the investor servicing debt may be able to hold on to the asset while it is temporarily vacant.

It is worth noting that prolonged declines in rental markets do ultimately pose risk to values. An example is Inner-city Melbourne, which has high exposure to rental demand from overseas migrants. Median asking rent values across the Melbourne SA2 market have fallen 24.2% between March and October. This highlights re-opening international travel and migration as a key part of bolstering rental income from property.

Housing markets did not hold up everywhere

These aforementioned factors may have contributed to stability in the housing market at an aggregate level in the face of COVID19.

The many markets that make up ‘the Australian property market’ still add complexity in evaluating its performance. There have in fact been significant corrections in property values since March, such as in the Inner East of Melbourne, which fell -9.6% in value over the period. COVID-19 has affected property markets, but severe loss in housing values has so far been contained.

Looking forward, despite further reductions in fiscal support, dwelling values are likely to continue rising off the back of the November cash rate reduction, converging with a recovery in consumer sentiment and economic conditions. A strong institutional response and the manufactured nature of the current downturn has moderated the impact of COVID-19 on the housing market, and would be further buoyed by the ongoing containment of the virus.

By  in Australian Property 

Why Buyers are Buying during COVID-19.

Statistically speaking, if you take a moment to research past global disruptions, you will find that an increase in property prices follows soon after. In my personal view, I believe the key measures are still very much in place for the property market to bounce back strongly once the Coronavirus is contained thanks to record low interest rates’, ‘slowdown in construction’, ‘government stimulus package assistance’ and ‘new job creation’ in thriving industries that have helped contain the unemployment blow.

“I strongly believe Home Sellers should refrain from selling now if they can afford to do so, history tells us that there is no better time to sell than later!” (As the below graph illustrates)

40 Year House Price Growth

When a property market enters its corrective cycle/recession (as we are currently witnessing), inexperienced buyers tend to play the waiting game, looking to see if vendors will succumb and sell to them for a bargain price – sometimes they get lucky, most of the time they don’t. On the flip side, when the property market enters its growth phase, inexperienced buyers often overpay to secure something out of fear of missing out because it is what everyone else is doing.

“Savvy buyers pounce in market conditions such as COVID-19 – it’s the golden buying opportunity. They know they will emerge the winner on the other end, which is rarely the case in a boom.”  

Savvy sellers and buyers both know that as a seller, you will never pick the peak of the ‘boom’, and as a buyer, you will never pick the peak of the ‘bottom’. Provided you have a stable job and income, you would be crazy not to look at investing at this point in time, as opposed to waiting for consumer confidence to re-emerge amongst home-sellers once this is all over.

Granted, there are a series of variables that come into play such as each individuals circumstances, and the fact you will often trade in the same market, meaning the your key measure should always be that of ‘changeover price’.

The point I am trying to make here is, don’t read too much into the media hype, because if that is what you base your purchasing and selling decisions on, you will almost certainly miss out on the best time to transact in Real Estate.

Never lose sight of the fact that you must take a long term view when investing in property, Real Estate can be a very dangerous marketplace for those that choose to adopt a short-term mindset.

Written By: Angelo Lambropoulos (Director, Lambros Realty)

How will COVID-19 (coronavirus) affect the Property Market?

Image result for angelo lambropoulosI believe it’s only a matter of time until property prices inevitably start to drop. Up until recent times, the property market appeared to be gathering healthy momentum due to easing credit conditions and interest rate cuts.

Whilst there had been talks of an additional interest rate cut at some point in the first half of this year, this months interest rate cut from the Reserve Bank was a result of fear of the developing coronavirus outbreak (don’t be surprised if there is a further rate cut to .25% tomorrow as a result of the RBA’s Emergency Meeting) – contrary to what those may perceive as a ‘positive outlook for the property market’.

The fact of the matter is, the coronavirus is negatively impacting the economy as a whole – to say that the property market is immune to such a pandemic is absurd. Even with the stimulus package the Government has released, perhaps even another fiscal stimulus to soon follow, there is only so much our Government can do with a situation of this magnitude.

For instance, look at the hit on other asset prices. Despite the fact interest rates are at record lows, assets such as equities have copped a beating. In plain English, this means that for those that have their wealth tied up in the share market, have seen their wealth significantly diminish – literally overnight. So the chances of those individuals using that capital to buy into the housing market is a non-event.

Unfortunately there are sectors of the economy where people lose their jobs, hence an increase in unemployment, hence remaining low interest rates for quite some time ahead – the coronavirus has well and truly hit our economy, some sectors just haven’t suffered (yet) – our Property Market being one prime example!

That being said, it is certainly not all doom and gloom. Time to look on the bright side. Let’s put the coronavirus to one side for a moment – we saw how fast the market gained strong momentum post-election in May 2019, it was powering along. The 2018/early 2019 price correction was almost nullified until the coronavirus outbreak spawned.

In summary, 2020 will be the year when you will likely need to buckle up and ride the property market roller-coaster.  It’s riddled with uncertainty and speculation. Throughout the course of this year and depending on your specific market place, expect to see a mixed bag of bargain buys and strong sales – the pendulum will swing in favour of those who are in a position to hold firm and don’t panic!

However, if is certainty you’re after, I firmly believe that 2021 will be the year for those looking to seek comfort – our economy will find solid ground, it always does!

Written by: Angelo Lambropoulos (Director, Lambros Realty)

Where you can afford to live in Sydney based on your salary

So where can you afford to buy a house or unit in Sydney based on your salary? New data reveals households on an average income can afford to purchase homes in more suburbs than just two years ago. SEE THE FULL SUBURB AND SALARY LIST

Homebuyers on an average wage can today afford to purchase houses in twice as many Sydney suburbs as they could two years ago, when prices were at their peak.

New research shows that in 2017, those on the city median household income of $105,000 a year before tax could afford a median priced house in only 5 per cent of Sydney’s suburbs.

That’s if they wanted to avoid mortgage stress — a situation where loan repayments eat up more than a third of your income.

The same buyers can now afford houses in 10 per cent of suburbs due to recent prices falls and interest rate cuts, analysis of CoreLogic data showed.

New data reveals what salary you need to buy in any suburb around Sydney. Picture: NSW Real Estate
New data reveals what salary you need to buy in any suburb around Sydney. Picture: NSW Real Estate

Unit buyers have even more options — an average earner can now afford median priced units in 31 per cent of Sydney suburbs, compared to 20 per cent two years ago.

Property experts described recent market moves as a “game changer” for buyers.

Sydney home prices fell an average 15 per cent over the past two years, while banks are now offering mortgage rates as low as 3.5 per cent — well under the 5 per cent variable rate most lenders offered in 2017.

“It’s become a great time to be a buyer,” Mortgage Choice’s Jane Vaughn said.

“Before, lots of buyers were sitting out the market because it was too difficult but now more are finding they can get in.”

Property advisory service Patrick Leo’s director James Nihill said Sydney remained a market where buyers still needed to spend big to get a home but it was “definitely more affordable”.

“Credit has never been this cheap,” he said, adding that buyers were also benefiting from reduced competition.

“There is no more frenzy in the market.

“There is a perception that it’s a good time to be buying but no one is making crazy offers any more.”

Can you afford a house in Vaucluse? Picture: NSW Real EstateCan you afford a house in Vaucluse? Picture: NSW Real Estate

Some of the biggest affordability gains were in Sydney’s west.

Middle-of-the-road houses became affordable again for average earners in Hebersham, Colyton, St Marys and Oakhurst.

In the southwest, house prices in Rosemeadow, Woodbine, Bradbury and Campbelltown were also affordable again.

Sydney’s cheapest properties could be found in Hawkesbury suburb Vineyard, where units at the median of $223,000 were affordable for buyers on an income of about $40,000.

Out west, median units were affordable for buyers earning about $60,000 in Winston Hills and Carramar.

Source:  Aidan Devine, The Sunday Telegraph