After an extraordinary boom, is Australia’s housing market hot or cold?
Answering this question is going to be difficult in coming months, particularly for markets that are essentially shut.
What is clear is that the nation’s housing markets are entering very tricky territory as the return of COVID lockdowns combine with emerging affordability constraints.
Ahead of the typically active spring selling and buying season, COVID restrictions are again materially disrupting market activity, impacting price momentum and the broad-based boom that began last year. The latest weekly data suggests turnover in Sydney is down about 30 per cent on its May level, a hefty fall but milder than the 50 per cent slump seen during last year’s national lockdown and, remarkably, still above average levels seen in 2019.
Unsurprisingly, consumer confidence has taken a substantial hit but is holding up compared to last year’s major lockdowns, with the accelerating vaccine rollout providing a key support. Simple extrapolations suggest the proportion of eligible Australians fully vaccinated will near the nation’s key 80 per cent target by mid to late October.
Despite being in lockdown for around two months, well over 500 properties are still being advertised for auction each week in Sydney, with about half selling prior and about 150-200 proceeding to auction online.
In addition, while CoreLogic’s daily measure points to some moderation in price gains in Sydney, it’s from a very strong starting point and still running at a monthly pace in the 1.4-1.8 per cent range – still a strong double-digit annual pace.
Looking ahead, outright dwelling price declines look unlikely, and growth should reaccelerate quickly once heavily affected markets such as Sydney and Melbourne reopen.
In fact, surging prices and stretched affordability look to be more important than COVID considerations for housing-related sentiment, at least so far.
The Westpac Melbourne Institute “time to buy a dwelling” index dropped another 14.1 per cent over the three months to August to now be down by nearly a third from its November high. The August reading marked the second lowest read since 2010, clearly suggesting that deteriorating affordability is starting to weigh heavily on buyer sentiment amongst owner occupiers.
The one consolation for house hunters is that the resumption of the price boom as COVID restrictions ease may be short-lived.
Around mid-2022 we expect regulators will likely tighten prudential policy, resulting in a sustained slowing in price growth before the start of a modest correction as interest rates start to rise in 2023.
But for the time being, the evolving COVID situation will remain the main driver of housing markets.
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