29 Jan 2024
Taking the next step on the property ladder
Shannon McMahon |
To renovate, or to sell, that is the question for millions of so-called “changeover buyers” across Australia.
26 Mar 2024
Why Australians love pre-loved property
Unlike many other sectors in our economy, housing is almost exclusively a second-hand market, with sales of pre-loved homes dominating property transactions.
In 2023, 79 per cent of purchases were for existing property, leaving 21 per cent of purchases as newly built dwelling, purchasing land or constructing a new dwelling, according to the Australian Bureau of Statistics (ABS).
"It’s interesting how significantly existing homeowners contribute to housing supply. It’s also interesting to consider how market conditions may influence them to sell or hold their home or investment.”
While the challenges around new builds are well known – including cost of materials and labour – it’s interesting how significantly existing homeowners contribute to housing supply. It’s also interesting to consider how market conditions may influence them to sell or hold their home or investment.
Upwards trends
Commitments to purchase housing (including existing dwellings, new dwellings, residential land for construction) have been rising in recent years, ABS Lending Indicators Data shows.
From 2016 to 2019, purchase commitments averaged $13 billion a month, increasing to a peak of $36 billion in December 2021 – almost triple the levels seen from 2016 to 2019.
While purchase commitments fell to $19 billion in January 2023, they continued to rise for the rest of last year – averaging $24 billion a month.
ABS Purchase Commitments
APRA data further shows new home lending accelerated from October to December last year. New lending excluding refinancing rose 18 per cent on the same period in 2022. Forward indicators such as lending commitments suggest this growth will continue during this quarter.
As most purchases are for existing property, sales by homeowners are driving a significant amount of this market activity.
Supply challenges
Another factor driving demand is population growth. Australia saw almost record population growth last year driven by a reduction in departures and a surge in arrivals. Annual net overseas migration to Australia reached 518,000, according to ABS figures to June 2023.
So why do only 21 per cent of purchases involve new builds? The pace of new builds has not kept up with population growth – so demand is still outpacing supply, though things could improve.
Population Growth vs Dwelling Growth
“There’s been this real mismatch between the amount of people who need homes and the amount of homes being built,” ANZ Senior Economist Adelaide Timbrell recently shared on the 5 in 5 with ANZ podcast. “That mismatch should narrow a little in 2024.”
Housing price growth is anticipated to outpace construction costs this year, which could encourage more building. Price growth of input materials and total output costs are slowing, and anecdotally it is easier to find construction workers compared to a year ago.
Following strong price growth of 9.1 per cent across capital cities last year, ANZ economists expect house prices to rise 5 to 6 per cent this year. The strongest performers are likely to be Brisbane and Perth, due to a shortage of available dwellings.
ANZ research, housing price forecasts
Auction clearance rates this year remains well above 2023 levels, according to research by CoreLogic. While this tends to be a forward indicator of housing price growth, other market indicators are cooling.
Listings and vendor discounts are (modestly) rising, as is the median time each property spends on the market. Monthly price increases are also slowing and people’s borrowing capacity may be impacted by higher interest rates.
Financial stability
So how are borrowers positioned to manage existing home loan commitments, or potentially take on new ones, in this uncertain climate?
APRA data for October to December last year indicates most borrowers have adapted to higher interest rates and are managing their repayments well. The data also showed Australia has a healthy loan-to-valuation (LVR) profile for housing, with 82 per cent of mortgages having LVRs below 80 per cent. This provides assurance for both borrowers and lenders.
Prepayment balances continue to increase, with balances in offset accounts increasing to 11 per cent of credit limits, the highset proportion since APRA began collecting this data in March 2019.
While this is positive, higher interest rates mean the number of future repayments covered by these buffers is reduced somewhat.
About 94 per cent of households with variable owner-occupier mortgages can pay their mortgage and buy essentials without dipping into savings, according to analysis by the Reserve Bank of Australia.
Of the remaining 6 per cent who have an income shortfall, more than half have more than two years of savings to cover the gap between their income and essential expenses.
Excess payments on mortgages
APRA’s data has identified a small but growing segment facing financial stress. While ANZ customers have proven resilient to this point, we stand ready to assist customers starting to feel that stress.
Buy or sell, or both?
There’s a lot to weigh up when it comes to buying or selling property, both from a financial and personal perspective. If you are considering buying in coming months, it can be helpful to engage with a lender or broker and apply for pre-approval for a loan.
This not only gives you an indication of your borrowing capacity, it can provide greater confidence to make an offer should the opportunity come up. Whether that opportunity is the existing property of your dreams or a new build.
Shannon McMahon is Managing Director of Home Loans at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
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