Australian property market remains resilient, but will it last?

author-avatar By on July 30, 2020
Australian property market remains resilient, but will it last?

Photo by Austin Kehmeier on Unsplash

A new report has revealed the Australian property market is balancing on a tightrope.

The PRD Australian Economic and Property Report found the market has managed to hold its value, despite predictions prices could fall by up to 30% due to COVID-19 shutdowns.

After devastating drought and bushfires, the property market was still managing to recover in the latter part of 2019 and first two months of 2020. 

The report found on average, median house prices grew for capital, metropolitan, and regional markets in the 12 months to the first half of 2020.

Regional markets performed best, up by 3.4%, while capital cities grew by 1.0% on average, led by Sydney, Melbourne and Hobart. 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayment
 
Fixed 2 Years 70% LVR
2.19% 2.56% $1,517 Go to site
2.59% 2.55% $1,599 Go to site
Budget Home Loan OO P&I
2.68% 2.74% $1,618 Go to site

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 August 2020. View disclaimer.

PRD Real Estate Chief Economist, Dr Diaswati Mardiasmo, said she believes the market has shown great resilience despite everything that was thrown at it in the past 12 months.

“Whilst COVID-19 hit us swiftly this year and threw Australian economy and property markets into turmoil, things settled down within the property market quicker than initially thought," she said. 

Dr Mardiasmo added this didn't mean a return to normality, with Government stimulus propping up the property market and offsetting the fallout from the pandemic. 

Since the Reserve Bank made a total of 125 basis point cuts to the cash rate since June 2019, upgraders and first home buyers have been taking advantage of historically-low interest rates on home loans. 

The report found upgraders accounted for 42.0% of loans in June 2020, and first home buyers accounted for 21.0% of loans in the same period, the highest level since 2013. 

New home sales increased by 77.6% as of June 2020, from a record low result in May, and the HomeBuilder scheme looks to be balancing the downturn in residential construction. 

Dr Mardiasmo said there was no doubt we were seeing signs of gradual improvement, but uncertainty about health and the economy meant many households and businesses were still cautious.

“The key going forward will be increasing levels of employment, public and private investment and consumer confidence based on the ongoing impact of COVID-19," Dr Mardiasmo said. 

"This sets the scene as we walk the tightrope to full economic recovery."

First home buyers out in force in New South Wales

The report found first home buyer activity remained strong in the 12 months to the March quarter of 2020, increasing by 33.3%.

This increase was labelled surprising as home loan affordability declined by 10.3% in the same time, but this was offset by various Federal and State Government stimulus. 

New South Wales metropolitan area settled sales grew by 24.6% in the 12 months to May, the strongest of all metro markets nationally.

The same area had the strongest median house price growth in New South Wales, up by 12.2%.

In good news for renters, Sydney recorded the greatest softening in median two-bedroom unit rental price, by -3.6% in the 12 months to the March quarter of 2020.

Victoria more affordable than New South Wales 

The report found Victoria's home loan affordability declined by only 7.6% in the 12 months to the March quarter of 2020, compared to New South Wales decline of 10.3%. 

The report said this made it an ideal place for first home buyers and activity in the group was strong, increasing by 24.4% and having the most loans for the group approved nationally (8,624). 

Victoria was also one of the most resilient markets in residential construction, softening by only 4.3% over the same period. 

Melbourne recorded steady growth in its median two-bedroom unit rental price, up by 2.2% in the 12 months to the March quarter of 2020.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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