Where are we with the housing market?

Bella Kidman

Livewire Markets

Nearly 12 months ago, I wrote a wire titled 'Buying property during a recession? Not as crazy as it sounds'.  

At the time of writing, the housing market had collapsed, interest rates were at record lows, and the outlook was grim. But fast forward ten months and Australia is experiencing a record property boom, with the average house price in NSW reaching $1 million last week. A stark difference from the doom and gloom property investors experienced during the height of the pandemic. 

But should investors be getting cautious of this rapid run for residential property? 

For this three-part collection, I got back in touch with our 2020 housing collection experts Shane Oliver and Pete Wargentand also approached Chris Rands.

In this first wire, our experts will weigh in on the current state of play for the residential housing market considering rural versus metropolitan house prices, rental vacancy rates and what work from home means for the market. 

From bust to boom 

Shane Oliver, AMP Capital 

The residential property market is booming. While monthly property price gains and auction clearances rates have slowed a bit from their March high they are still at boom time levels. This is very different to what many including myself expected a year ago – but the upturn in the property market became apparent through the second half of last year.

Basically the combination of JobKeeper and bank payment holidays headed off the sort of slump in prices as a result of forced selling that would normally be expected in a recession. And then the combination of a faster than expected recovery in the economy and jobs market starting in the second half last year, high levels of confidence, ultra-low mortgage rates, government incentives and FOMO or a fear of missing out has seen property prices rebound by nearly 15% from their low last year. All of this has swamped the drag from the absence of demand for housing from immigrants.

And so a potential bust on the back of the pandemic has been turned into a massive boom.

This has been led by houses rather than units reflecting a shift in buyer preferences to focus more on lifestyle as a result of the pandemic, particularly in Darwin, Hobart, Canberra and Sydney. Reflecting the lifestyle focus regional property prices has also taken off after lagging for many years. By contrast Melbourne property has been the laggard not helped by its extended lockdown last year.

However, while surging prices are great for those owner occupiers and investors who are already in the property market, its bad news for first home buyers with affordability deteriorating yet again. And of course the resurgence in prices has meant a renewed acceleration in already high household debt levels.


Source: CoreLogic, AMP Capital 

It's all in the rebound 

Pete Wargent, Buyers Buyers 

Having hit a nadir around a year earlier, property transaction levels have continued to rebound solidly, as illustrated by the latest figures from the New South Wales state government.

Transfer duty collected in NSW rebounded to $8½ billion over the year to April 2021, which is worthy of note since a switch towards a broad-based land tax has been mooted.


Overall, activity is evidently strong in the housing market.

Demand for houses is especially high, both in capital cities and regional areas, particularly popular lifestyle locations, due to:

  • The traditional demand for houses with material land value, combined with a chronic undersupply of houses in popular areas;
  • COVID impact with flexible working arrangements - the need for more spacious housing has increased substantially; and
  • Flexible working arrangements enabling people to relocate to lifestyle areas.

However, demand for rental properties in oversupplied areas such as inner-city Melbourne is very subdued, with high vacancy rates and lower weekly rents making these properties a less attractive investment.

Housing credit growth is rising, and based on increased levels of enquiry from investors, we expect investor credit to continue driving the market forward in H2 2021.

The housing credit impulse points towards double digit price growth, which is in line with what our buyer’s agents have been experiencing on the ground.

The stock of interest-only mortgage has hit fresh data series low as a share of the outstanding housing loan stock by value at around 14 per cent, but we should expect new interest-only lending to rise from here, perhaps significantly.

A number of lenders may also look to move back into the self-managed superannuation fund (SMSF) lending space, so no doubt there will be a keen level of regulatory interest in the second half of the calendar year.

Stock levels: existing and residential construction

New stock listings are very healthy for this time of year, so there’s no imminent requirement for macroprudential intervention.

The supply of new dwellings is also responding well to the housing stimulus packages.

Residential construction in the detached housing sector is currently running at very strong levels right across the country - including in regional markets - although the number of attached dwelling units under construction has dropped sharply from the previous cycle highs, which may become more evident once immigration is reignited.

New loan commitments say it all 

Chris Rands, Yarra Capital Management 

The state of the Australian housing market looks extremely good now, with a number of our lead indicators continuing to point to strong outcomes for at least the next six months. Usually when writing about housing we would focus on auction clearance rates and building approvals. But at the moment, loan commitments say it all.

Loan commitments have continued to show remarkable strength, particularly in the owner-occupied segment of the market where commitments are more than two times larger than the prior 2016/2017 period of strength.

Source: Australian Bureau of Statistics 

This series is a fantastic lead indicator for house prices, with the year-on-year change in housing lagging the series by about six months. The current gains in housing commitments suggest there could be further six months or so of gains, with the potential for house prices to rise a further 10%.

Source: Australian Bureau of Statistics, Bloomberg, Yarra Capital Management 

With interest rates remaining at extremely low levels and owner occupiers continuing to borrow, it’s unlikely to see prices stopping their ascent. 

Buying property during a recession? Not as crazy as it sounds

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Bella Kidman
Bella Kidman
Content Editor
Livewire Markets

Bella is a Content Editor at Livewire Markets.

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