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Coronavirus house price slide worsens, but First Home Loan Deposit Scheme attracts new buyers

ABC Business logoABC Business 1/07/2020 By business reporter Michael Janda
a sign in front of a building: National house prices fell 0.7 per cent over June but were up 7.8 per cent over the financial year. (ABC News: James Carmody) © Provided by ABC Business National house prices fell 0.7 per cent over June but were up 7.8 per cent over the financial year. (ABC News: James Carmody)

The coronavirus-induced slide in Australian housing values accelerated last month, as more sellers put their homes on the market.

CoreLogic's monthly home value index showed a 0.7 per cent fall in values nationally, led by a 0.8 per cent drop in capital city prices.

The biggest capital city falls were in Melbourne and Perth, which both recorded a 1.1 per cent decline, while Sydney had a 0.8 per cent drop in values.

Brisbane and Adelaide posted smaller declines, as did regional areas, which fell 0.2 per cent.

The smaller capital cities — Hobart, Darwin and Canberra — defied the falls elsewhere with modest gains.

Price falls expected to continue

However, CoreLogic's head of research Australia, Eliza Owen, said most analysts are expecting price declines to continue, with a peak-to-trough fall nationally of about 10 per cent.

"There are definitely some headwinds and risks that lie ahead for the market," she told ABC News.

"These include a sustained rate of high unemployment, with the cash rate unlikely to go any lower, it really does come back to labour market fundamentals to improve purchasing capacity for housing.

"The other major risk is the tapering off of fiscal stimulus and how long banks can sustain easier conditions for people trying to service mortgages amid these job and income losses."

Ms Owen said that both the Federal Government stimulus measures — such as JobKeeper and a boosted JobSeeker — have been, "extremely important in preserving stability in the housing market".

"We know that for a 1 per cent increase in the unemployment rate historically, for example, the RBA estimates there's about an 80-basis-point increase in the rate of mortgage arrears," she observed.

"So, with about 400,000 people on these mortgage holidays, we can expect that when those start to taper out we'll see a bit of an uplift in arrears.

"But, hopefully, by that time we'll see a bit of an improvement in the labour force and more people back on the incomes they were before the onset of coronavirus."

That is one reason why Ms Owen is not currently expecting those falls to turn into a full-blown property market crash.

"Economic conditions seem a bit better than what was initially forecast by the RBA and so it is likely that we're not going to see a housing market crash," she added.

Ms Owen said the number of property listings is the key piece of data to watch to predict how the market may move in the short term.

CoreLogic's figures show listings are up 42 per cent from a low point in early May but, so far, those extra properties for sale are finding buyers, with home sales also up more than 20 per cent in May and nearly 30 per cent in June.

"So far, nationally, that's been well absorbed by high sales volumes and so the total stock on market is still tight and still trending down," Ms Owen said.

"We are starting to see signs of an accumulation of total stock across Sydney and Melbourne and, of course, that's where we see higher levels of investment as well."

First home buyers underwriting demand

Data out this week shows owner-occupiers are picking up a bit of the slack created by investors dropping out of the property market.

Credit to owner-occupiers grew by 0.5 per cent in May while loans to investors fell 0.3 per cent.

Recent ABS data show first time buyers continue to make up around a third of that owner-occupier home loan demand.

The latest ABS data for April show demand from first home buyers was around 20 per cent higher than the most recent low point in December 2018, as property price falls in many markets over late 2018 and early 2019 lured them into the property market.

Also attracting first home buyers more recently has been the Federal Government's First Home Loan Deposit Scheme, which allows some to get a loan with just a 5 per cent deposit and without the need for lender's mortgage insurance.

The initial 10,000 places for the 2019-20 financial year were all taken up, and this financial year's allocation of 10,000 has just opened.

The chief customer officer of mortgage-broking firm Aussie, David Smith, said first home buyer enquiries with the firm have more than doubled from the same time last year and are at record highs, despite a survey conducted for the business showing many have not heard of the deposit scheme.

"Initiatives like the First Home Loan Deposit Scheme, in particular, represent a significant opportunity for first home buyers to accelerate their home ownership goals, and yet 85 per cent said they had never even heard of the scheme," he noted in a report on the survey.

The survey of just over a thousand prospective first home buyers showed 71 per cent wanted to take advantage of the renewed fall in home prices to buy, but 98 per cent believed they faced challenges to buying, with more than half saying getting approved for a loan was a key challenge.

Home building slump worsens

Separate figures from the Australian Bureau of Statistics show the slump in home building plans is also accelerating.

Building approvals from councils dropped a precipitous 16.4 per cent in May, led by a collapse of 35 per cent in unit and attached-dwelling approvals, while detached-house approvals dropped 4.4 per cent.

"The number of dwellings approved in apartment buildings fell sharply, to an 11-year low," the bureau's head of construction statistics, Daniel Rossi, said.

That has pulled total building approvals to the lowest levels in years.

"Total building approvals are tracking at the lowest level since early 2013," AMP Capital senior economist Diana Mousina wrote in a note.

"The decline in building approvals started in late 2017 and started bottoming in late 2019 but the COVID-19 pandemic has led to further falls in construction activity."

Ms Mousina said developers were starting to anticipate the drop-off in demand for new dwellings with immigration dried up during the COVID-19 pandemic.

"Net migration is expected to decline by around 200,000 over 2020 and 2021 — compared to the 240,000 annual increases in net migration over recent years," she observed.

"This will mean lower demand for new housing — by around 80,000 dwellings — over the next two years."


Video: ABS data shows gradual recovery in job market (Sky News Australia)

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