Mixed picture in housing
David James |
30 April 2021
Australia’s residential housing prices do not seem to have been harmed as much as many expected by the epidemic. But the picture is complex.
According to figures from the Reserve Bank, the Australian Bureau of Statistics and Nucleus Wealth, house affordability on an historical basis is near the historical average in Sydney and Melbourne. Mortgage payments are about half the cost of rents in Sydney and Melbourne for houses and units and 31-46% for houses in other capital cities. Mortgage payments for units in Brisbane, Perth and Adelaide are far lower when compared with rents, ranging from 3% to 15%.
Mortgage payments as a percentage of an average full time wage are as high as 60-64% for houses in Melbourne and Sydney but only 31% in Perth. For units, these percentages are much lower. For people saving to buy or hoping to repay a loan, however, the prospects remain difficult. Property prices of homes as a percentage of a full time wage range from 95-100% (except for Perth, which is 76%).
Rental yields are low; nominal rent growth is negative. But capital value are high, with house prices relative to wages at 40 year highs.
According to a report on the banks by Goldman Sachs, there are signs of life in housing. “Mortgage approvals data has trended strongly in recent months, with 12-mo rolling approvals (net of refinancings) up 14% on the previous corresponding period. This has historically correlated with much stronger system mortgage credit growth than the current c.3% level.” Goldman is forecasting housing credit growth of 2.4% in the first half of 2021, and then a gradual increasing to +3.5% in the second half of this year.
The broker notes, however, that we have not yet seen the full impact on the economy post the removal of support provided by governments and banks. Goldman reports that the Commonwealth Bank’s management believes “it to be too early in the first half of 2021 to be releasing provisions [for bad debts] and believes they will be better positioned to make a call on this by the end of the Jun-21 quarter.”
It is not just provisions for bad debts. Another metric is deferrals of loans as borrowers cope with the economic impact of the lock downs. Goldman says performance in this area looks “promising”. “We note that management commentary across the major banks generally suggested that the outlook for asset quality is likely to normalise and revert to long-run levels.”
Australian housing may once again be showing how resilient it is as an asset type.