Vacancies Hit Low, Rents to Rise

Competition for rental properties is higher than ever with the national vacancy rate now just 1.5%, but with most cities well below that level.

Renters are expected to find it even tougher when international borders re-open and international students and migrants return.

Domain figures show Hobart has the lowest vacancy rate of just 0.3%, followed by Adelaide 0.4%, Perth 0.5%, Canberra and Darwin, 0.9% and Brisbane 1.2%. Sydney has a vacancy rate of 2.3% and Melbourne 3%.

Domain chief of research and economics Nicola Powell predicts a “dramatic impact” on vacancy rates once international borders reopen. Rental demand will likely climb, reducing the already limited proportion of vacant homes and pushing prices beyond already record highs.

Graham Cooke, head of consumer research at Finder, says renters should start preparing for higher housing costs. “The pandemic turned the rental market on its head in some areas,” he says.

Rental Property Pool Has Shrunk

The number of investors entering the property market has increased, but it is not keeping up with those leaving the market, leading to a shortage of
rental properties.

An exodus of property investors in previous years has resulted in the largest shortfall of rental homes being in seven years, according to new data from
REA Group.

It says smaller returns, tighter lending policies and changes to landlord’s rights has caused many investors to sell more than buy, resulting in a
shrinking rental market.

Simon Pressley from Propertyology says there are 20,000 fewer rental properties being advertised nationally compared to five years ago.

“Plain and simple, rental supply is a direct outcome of investor activity. It has always been that way,” he says.

“Since 2015, investor participation rates in this country have been well short of demand.”

The outcome is vacancy rates below 1.5% in six of the eight capital cities and in most regional areas.

Boom Not Over: Market Keeps Growing

Australia’s pandemic property boom is continuing with the latest figures revealing house values have increased for the 14th consecutive month.

CoreLogic figures show values increased 1.3% in November, the lowest increase since January. But house values are rising faster in Brisbane and Adelaide with Brisbane’s home price up by 2.9% in November (the fastest rate in 18 years) and Adelaide up 2.5% (the highest rise since 1993).

“Housing affordability in Brisbane and Adelaide is less pressing, there have been fewer disruptions from lockdowns and interstate migration is fuelling housing demand,” says CoreLogic research director Tim Lawless.

“It’s still a hot market,” he says. “The boom isn’t over. Even in Melbourne and Sydney, where it’s slowed, you’re still seeing values rise 1% in a month. Even though the market has slowed in those cities, the rate is still well above average.”

Investors Pile Into The Market

Investors are borrowing big to buy real estate as first-home buyers take a back seat, but the market-share of investors remains below historical averages.

Economist Nerida Conisbee says investors have not been put off by rising property prices and are taking out new loans at near-record levels.

ABS lending indicators show loans to investors rose by 1.1% to $9.73 billion in October, the highest amount recorded in six years and more than double the recent low point of $4.23 billion at the start of the pandemic in May 2020.

ABS head of finance and wealth Katherine Keenan says the value of new loan commitments for investor housing has grown for 12 consecutive months.

“While the value of investor loan commitments has grown 90% over the past year, the number of investor loans only accounted for 33% of all new loan commitments in October,” she says.

RBA Reaffirms Rate Stability

The Reserve Bank has reiterated that it does not intend to lift interest rates next year, despite growing industry speculation of a rise.

This week, at the final board meeting of the year, the RBA left the cash rate at 0.10% and Governor Philip Lowe announced that the latest data and forecasts did not warrant an increase in the cash rate during 2022.

Lowe says that, despite the emergence of Omicron, leading indicators point to a strong recovery in the labour market, job ads are at historically high levels and wages growth has picked up.

“The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery,” he says. “The economy is expected to return to its pre-Delta path in the first half of 2022.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.”

Worst Timber/Steel Shortage In 40 years

Materials shortages, extreme rainfall and flash flooding are all predicted to continue to affect home building and property prices in the next year.

Also impacting the industry is the unprecedented demand caused by the Federal Government’s HomeBuilder scheme stimulus, which is driving over 143,700 new builds this year.

Scott Brumfield of construction group Hansen Yuncken says pandemic-related international supply chain issues have left Australia with its worst material shortage in 40 years.

“Delays in sourcing materials, from international suppliers especially, is not a new issue for Australia, given its geographical location, but one exacerbated by Covid among other factors and we now have a crisis on our hands,” he says.

Brumfield says steel prices have increased 15% and lead times are taking up to 18 months. Even before Covid there were delays in sourcing tiles, vinyl, glass and aluminium.

200 Loan Products Below 2%

Lenders are continuing to offer low interest rates and incentives to entice homeowners to refinance.

Almost 200 lenders are now offering home loans at interest rates of less than 2%, although Money warns borrowers to do their research, not fall for gimmicks and to fully investigate cashback offers and honeymoon rates.

It says mortgages need to have a “real” quarantined deposit/offset account that runs alongside the home loan and nets off the savings balance from the
amount owed.

Otherwise, borrowers can find their savings are subsumed into the mortgage and locked up and unavailable for redraw if needed.

Mozo analysed the 10 best mortgages for owneroccupiers in the market for Money. The cheapest was from Well Home Loans with an interest rate of 1.85%, followed by the Police Credit Union and Tic:Toc at 1.89%. The comparison rate, which includes fees, is slightly lower at Police Credit Union while the Tic:Toc offer has a $10 monthly charge for having an offset account.

Markets Cope With Listings Surge

Property prices and demand continue to be strong despite increased listing levels in some capital cities.

CoreLogic figures show the number of properties offered for auction across Australia hit 4,261 last week – the first time auction numbers have exceeded
4,000 making it the busiest week of auctions since it started keeping records in 2008.

The preliminary auction clearance rate has softened a little since October but still remains above 70%, with 71.4% of auction properties selling under the
hammer last week.

Canberra had the highest auction clearance rate of 88%, while Adelaide achieved 79% and Brisbane 75%.

In Sydney 1,577 properties went to auction, the highest number offered since November 2014, achieving a clearance rate of 71.4%, down 2% on the previous week.

In Melbourne 1,891 properties were offered for auction last week, recording a clearance rate of 69%, down from 73% the previous week.