The outlook for housing

  • By Christine St Anne

Record-low mortgage rates will likely be a significant tailwind for property values, and may place upward pressure on prices through 2021, according to CoreLogic head of research Eliza Owens

In an assessment of the sector, CoreLogic highlighted a number of trends for the new year.

The year was typified by a record low cash rate and for Owens, the outlook is relatively positive. 

“The low mortgage rates, combined with a recovery in economic, some earlier factors considered a major risk to housing markets have been reduced, including the end of mortgage repayment deferrals. 

Given Victoria’s long lockdown laws due to the health pandemic, it is not surprising that Owens believes that inner-city Melbourne will be the riskier market in 2021. 

In particular, she sees an oversupply of housing stock coming into the market, impacting house prices.

According to the CoreLogic data, there was only around 0.5 sales for each new listing added in Melbourne, compared with other capital cities, where November sales averaged 1.2 sales for each new listing. 

“Despite Melbourne dwelling values joining a broad-based recovery trend in November, and values rising 0.7 per cent in the month, the disproportionate volume of stock to sales volumes may slow the rate recovery across the city in 2021.” 

Owens also believes that listings in property investment will increase across some capital cities including Perth , where rent values rose 8.2 per cent in the year to November. 

In Hobart, where gross rent yields are 4.6 per cent across dwellings, the investor share of mortgage finance increased from a recent low of 16.4 per cent in August 2020, to 21.8 per cent in October across Tasmania.

 …”policy makers and regulators may watch for signs of rising household debt, or a decline in prudential lending standards that could lead to higher household debt.”

Finally, Owens believes policy will “continue to shape the profile of property buyers,” particularly as HomeBuilder is extended at a reduced rate into the first quarter of 2021, and regulators monitor prudential lending standards. 

As at June 2020, the housing debt to income ratio was 141.2, with housing debt accounting for most of Australian household debt. 

“This poses an ongoing risk to the Australian economy, especially where heavily indebted households may be more likely to save rather than spend during periods of uncertainty or economic hardship,” Owens said. 

“As a result, policy makers and regulators may watch for signs of rising household debt, or a decline in prudential lending standards that could lead to higher household debt. 

“Higher LVR lending or higher loan to income ratios could be a trigger for macro-prudential intervention in 2021.”

It’s an issue also highlighted by Owens’ colleague Tim Lawless when the Reserve Bank cut rates to record lows in November

Despite these challenges, the housing market seems to have defied the impact of the pandemic and Owens sees a positive outlook in the year ahead. 

“Overall, the housing market outlook for 2021 is positive, given highly accommodative monetary and fiscal policy, signs of an economic recovery and many first home buyer incentives remaining in place through to early next year.” 

CoreLogic's Eliza Owens will be speaking at the RFi Group Australian Mortgage Innovation Summit in February 2021.