PODCAST: how will housing market perform post-pandemic?

Michael Wake

General Manager for New South Wales and the ACT

A decision by regulators last week to reintroduce macroprudential measures to restrain price rises has refocused attention on Australia’s housing market.

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Issues including not just skyrocketing property prices but housing affordability, further potential regulatory intervention and the impact of lingering COVID-19 lockdowns have come to the fore.

“Once people have a little bit more freedom to spend their money in other ways, that's when we'll start to see some of the heat coming out of the housing market as well and price growth slowing down.” – Cameron Kusher

ANZ senior economist Adelaide Timbrell says while the economic impact of prolonged lockdowns in Sydney and Melbourne has been pronounced, the losses associated with the Delta variant were less severe than the outbreaks in 2020.

“We saw a loss of 7 per cent of gross domestic product last year and we're only expecting to see about half of that this year,” Timbrell says. “We have adapted over the last 18 months, whether that means businesses learning how to have remote workers; cafes and restaurants setting up infrastructure for more online and delivery related services; people moving out of tourism exposed jobs into other sectors. All of that put us in a much better situation for this particular challenge.”

This helps give consumers more certainty than last year which bodes well for the property market. “Consumers are less scared about losing their jobs and the government has to keep spending money to reduce the risk of a big economic downturn,” according to Timbrell. ‘And this all really plays into household spending, more businesses earning more and less of that kind of risk of spiralling to very high unemployment.”

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Bounce back

The pandemic has created a unique type of recession – this economic downturn hasn’t been caused by a financial crisis or a breakdown in financial markets. It's not because people don't have money, it's because they don't have freedom of movement, Timbrell says.

“That means the pattern of recovery becomes really different to your usual recession,” Timbrell says. “Certain things bounce back far quicker. Last year we saw the unemployment rate peak at 7.5 per cent and it was back down to its pre-recession rate within months. Things tend to shoot right up when it comes to unemployment or other problems in the economy, and then they slowly recover.

“With a health crisis, because physical restrictions are the big factor, once they go away so do a lot of those problems. That can create a much faster recovery in some of those key economic measures.”

These factors, combined with historically low interest rates, have led to high demand for housing in most Australian markets, according to REA Group economic research director Cameron Kusher. House prices rose 20.3 per cent in the last 12 months, according to another property research firm CoreLogic. That’s the fastest pace since June 1989.

In raising the interest rate buffer banks use when assessing home loans, the Australian Prudential Regulatory Authority said more than one in five new loans approved in the June quarter were at more than six times the borrowers’ income.

Kusher says there was a record number of enquiries to real estate agents for established property and new homes in August. However, the demand picture can vary depending on the various restrictions in different states.

In New South Wales, where one-on-one inspections were possible in August, there was a large increase in new listings as prospective buyers recognised “conditions aren't ideal but we can get on with things”.

In Melbourne the lack of inspections is damaging vendor confidence, Kusher says, with a 28 per cent decline in new listings in August. However, when lockdowns lift listing can rebound rapidly.

Finding balance

“We suspect that a lot of stock will come onto the market very quickly. And hopefully that brings about a better equilibrium between supply and demand when that does start to occur, probably from November this year.”

While Reserve Bank of Australia Governor Philip Lowe has reiterated interest rates are unlikely to rise before at least 2024, the big swing factor for the property market will be the gradual easing of restrictions, Kusher says.

“Once a lot of the restrictions are dropped, people can start doing other things with their money. If you're in New South Wales and Victoria at the moment, you can't even go to the pub. You can't go out for a meal to a restaurant. You're not travelling into and out of the city on a regular basis.

Further macroprudential policies would also dampen the availability of credit and lead to slower price growth. These factors may create an opportunity for customers who have been waiting for the dust to settle, according to ANZ’s general manager for New South Wales Michael Wake.

Potential buyers want the ability to act quickly if the right market conditions arise.

In the particular market our customers are in, where the ability to move quickly is needed in many cases to be able to secure a property and for looking across an investment portfolio.

That could be their own home and then an investment property and then looking to what's next for them in that mix. For our customers, that diversification is a priority and as restrictions ease it becomes easier to look at diversifying across a number of different areas.

Michael Wake is General Manager for New South Wales and the ACT

Click here to listen to the full Emerging Economics podcast series

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.