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Property and mortgage market update

The resilience of Australian property

2020 has been an interesting year indeed, however, one of the most interesting developments has been the resilience of the Australian property market.

Since the pandemic took hold, house prices have not plummeted, despite all of the early forecasts.

Following international border closures on the 22nd of March:

  • Sydney prices have eased 2%
  • Brisbane values are relatively unaffected, down 0.1%
  • Perth property has fallen by 1.9%
  • Melbourne is the worst affected, falling 4.8%
  • Adelaide prices are up 0.6%…

Another interesting point is that in every capital city (except Darwin), prices are now higher than they were a year ago…

A little more than a week ago, CBA’s Head of Australian Economics, Gareth Aird, revised their peak to trough fall from 10% down to 6%, with the market expected to bottom in the first quarter of 2021. From then on, CBA expects a ‘solid recovery’ in housing driven largely by record-low mortgage rates.

Additionally, Sydney looks to be an absolute stand out performer in terms of general activity. Over the past month, Sydney has accounted for over 65% of all auctions across Australia with an average clearance rate of over 70%!

The key drivers of this stability look to record low-interest rates, a strong and supportive banking system, and government stimulus. Although we don’t necessarily believe that we are out of the woods yet, it certainly is interesting to watch.

Has responsible lending swung too far?

As we all know, the lending policy has been steadily tightening since 2015. We have been in support of many of these policies as they have helped improved consumer balance sheets so that we can better handle any economic shocks – like the one we are currently experiencing.

Some of these policies, however, have been labelled as onerous and unnecessary…

Two months ago, ASIC narrowly lost its responsible lending case against Westpac, where ASIC argued that Westpac was overly reliant on the Household Expenditure Measure benchmark, essentially claiming that they didn’t review peoples living expense closely enough, and therefore didn’t assess their borrowing capacity properly.

RBA governor, Phillip Lowe, made some comments this month insinuating that the current lending standards are too strict and that the pendulum may have “swung too far”.

ASIC abandoned the case altogether last month after the RBA and Treasury both issued warnings against the potential economic impact of such policies.

Whilst we don’t anticipate a material unwinding of all the changes that have been implemented, we do believe that there needs to be a slightly more logical approach in some areas.

RBA CASH RATE ON HOLD FOR SEPT: 0.25% –
RBA | Cash Rate Target

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