Market update – The state of the market, where we are headed, Bank predictions, the RBA governor speaks, debt servicing at record lows, NSW plans to abolish stamp duty and more! (Ep. 76)

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In this week’s episode, Dave, Cate and Pete take you through:

  1. All aboard as the last of the big banks revise their property forecast UP for 2021! ANZ is the last of the big 4 bank dominos to fall, and revise up their previous gloomy 2021 predictions for the property market. As we shared in April, we expected the market to fall by less than 5% and in early October we predicted 10% + growth in 2021, and more to come in 2022. Now the banks and other economists have adjusted their views.
  2. The peak to trough fall in values from Covid well within our predicted 5% band. The impact of the Covid pandemic on property values from peak to trough was a modest decline of 1.7% for the entire Aussie property market and 2.8% for capital cities. CoreLogic data tells us that the Melbourne market bottomed on Oct 18 and the Aussie market a week earlier. In the Podcast we called the inflection point in late September due to data lag. Once again, many analysts have egg on their face, predicting cataclysmic price falls. Perhaps we need to have a Podcast on why macro- economic experts still do not understand the true drivers of the residential property market!
  3. The Melbourne property market has joined the party. Melbourne property values are surging with CoreLogic showing growth in values since mid to late October, auction clearance rates surpassed Sydney on the weekend and all signs point towards a larger recovery, because of the larger fall and Melbourne was on a tear leading into Covid. This has been playing out at the coal face since the start of October.
  4. The kiwi property market, a look into our future? The New Zealand government went hard and fast locking down to stamp out Covid. The effective eradication of the virus along with significant stimulus and with interest rates has resulted in median property values rising a whopping 11.1%! This trajectory means that the Reserve Bank of NZ is talking about macro prudential measures, such as restricting LVRs to slow down the property market already. We have predicted this kind of intervention will be on the cards for Australia towards the end of 2021 or into 2022 as APRA has proven it works.
  5. We explain some key reasons why we predicted property values would surge. For starters, debt serviceability is the lowest it has been since 2001. Interest repayments as a share of total household incomes are the lowest they have been since March 2002.  The Australian property market has provided zero net capital growth for about four years now. The unfortunate reality is that despite so many people having such a difficult time, many of them were young people in part-time and casual work and not on the property ladder. A larger cohort of people have the greatest level of savings on record and benefited from stimulus which they can now deploy in investments.
  6. The repeal of ASIC’s Responsible Lending obligations is looking increasing likely! At the AFR Banking and Wealth Summit during the week, treasurer Josh Frydenberg ratcheted up the pressure on regulators to ensure they played their part, which acting ASIC chairwoman Karen Chester indicated she had heard loud and clear. The ASIC chairwoman painted the picture of a clear pivot of ASIC’s position and it provided another sign that the Morrison government will ensure that the recovery is not hampered by lack of access to credit.
  7. Why property value increases will not be halted by the end of JobKeeper and loan repayment pauses. The trio explain the critical drivers that will continue to put upward pressure on values.
  8. Explain why the latest cash rate drop was not about reducing interest rates for borrowers. While the low-rate environment is doing wonders for our debt=to-income ratio, it’s not the primary reason why the RBA has been steadily lowering rates. The Property Planner, Buyer and Professor explain the real reason behind the rate cuts which are primarily about keeping our exchange rate lower and creating jobs which are more important than focusing, or worrying about excessive inflation.
  9. Banks forecasting an ever-improving positive outlook for GDP and unemployment. Government stimulus, our proven ability to suppress Covid, successful vaccines, the property market in full rebound mode and the expectation of record-breaking internal tourism all points to updated forecasts for superior GDP growth and reduction of unemployment in 2021, with one major back predicting unemployment to be as low as 5.75%.
  10. We touch on the big news in the NSW budget, with the plan to make stamp duty optional. We take a high-level look at this potential transition from stamp duty to a yearly tax on property and our hosts provide some different perspectives on what this could mean, but it is only early days yet.
  11. Listen to some of our predictions back in April and May. For perspective, we suggest that you listen to our market updates during the early stages of the Covid pandemic where we discuss why a downturn is usually the best time to buy property and a number of the factors that we expected, and have, played out now because history may not repeat, but it sure does rhyme!
    1. Market update #5 – The green shoots – what are the early signs of market recovery? 
    2. Market update #6 – Getting your ducks in a row before the economy opens up! 
    3. Market update #7 – Recovery lessons from recent recessions, the great depression, GFC & Spanish Flu – the market forecast 
  12. And of course, our ‘gold nuggets’!


Show notes 

  • Australian Financial Review Banking and Wealth Summit 
  • CBA CEO Matt Comyn said – I think, 2.75 per cent GDP growth in calendar 2021 – that’s now at 4.5 per cent. I think where we have an even more optimistic view is on unemployment, I think the RBA had 6.5 per cent by the end of next calendar year, and we’re at 5.75 per cent.” CBA CEO Matt Comyn said.  
  • Unemployment – Amount of stimulus, ability to suppress covid, huge announcements with two US based vaccines with efficacy rates above 90%, property market hasn’t declined that much, wealth effect, tourism opening up. 
  • “There is potential that the housing market accelerates into 2021, 2022”. 
  • The property bandwagon 
  • ANZ has scrapped and is one of the last banks to adjust its forecast, for a pandemic-linked 10 per cent drop in house prices and says a jump in sentiment based on stimulus measures and record-low interest rates will curb the decline, and could even result in “modest” price growth this year. 
  • It expects strong growth next year – housing prices in  
  • Perth are likely to jump 12 per cent,  
  • Brisbane 9.5 per cent and Hobart 9.4 per cent.  
  • Sydney prices are expected to rise 8.8 per cent – close to the national average – but  
  • Melbourne prices will lag, with 7.8 per cent growth. 
  • We wonder if Melbourne will end up having the greatest increase, because it’s had the greatest fall. 
  • NZ a great example to watch what’s happened to see what could happen here 
  • They’ve had a median price rise of 11.1% in the year to September.  
  • They are having significant talk about macro prudential regulations to slow down the property market through LVRs 
  • While the median price in Auckland reached nearly $1m (US$660,000).  
  • Prices rose 2.5% across the country in September compared with August. 
  • Melbourne market hotting up 
  • Increased volumes, Melbourne’s volumes went through the roof – deluge of stock and the stock has continued to come. Campaigns are stretched out to February and March.  
  • The buyer demand is keeping up with this, it’s not a story of a glut of listings and less demand. There is heaps of competition in the Melbourne and regional market. All capital cities on the Eastern Seaboard are doing well.  
  • If people take the chance and wait until March for when jobkeeper finishes, you may be very disappointed to find that responsible lending obligations being scrapped will stop prices from falling.  
  • What we’re seeing on the ground – During Covid, property was marketed 1.1 – 1.3M. Agent was confident we would secure the property with an offer of 1.25M. A week after restrictions eased, agent started getting offers over 1.3M. Decided to take to auction and sold for 1.43M. 
  • Even if we go to some of the facts as to why the wave of property value price increases I think will continue to surge and some of the factors like loan pauses coming to an end, job keeper coming to an end will get swamped:  
  • Responsible lending obligations 
  • Debt serviceability is at the best it’s been for 19 years – these are the real factors of what low interest rates mean. You can borrow more money as a proportion of your income than you could since 2001 and interest repayments as a share of total household incomes, even with our reasonably high levels of debt, are the lowest they’ve been since March 2002. 
  • It’s actually more affordable to buy a house today than it was 20 or 30 years ago.  
  • We talk about unemployment going to 6%, but this is only one segment of the market and it could affect other areas of the economy, but that doesn’t mean it will affect the property market.  
  • The unfortunate reality is that a significant proportion of the populations wealth is much better off than the percentage of people who are worse off. It’s not a positive thing that so many people are worse off, but we have the greatest savings records in history. There are a lot of people in much stronger positions, more savings, more income and it’s more affordable to borrow to purchase property.  
  • They’re talking again now about the 2-speed economy – property market doesn’t work to the same metrics to the economy, it has it’s own set of metrics and it will move to it’s own speed and faster than the economy. 
  • Property sale prices are going up, but also property rents.  
  • First time buyers are entering the market in droves and this has meant that rental stock on the market has decreased as investors sell up to home buyers.  
  • RBA announcement this week 
  • Rate drop is not about mortgages, it’s about keeping the value of our currency suppressed. Our 5 and 10 year bonds were a much higher return than other government’s bonds, which means that our economy is stronger, and our currency goes higher, which impacts our exporters. The RBA needed to make these changes to basically compete with other first world economies.  
  • What they’re doing now is all about creating jobs, rather than trying to control inflation.  
  • NSW plan to make stamp duty optional 
  • Stamp duty has been on the table for discussion for a very long time. It does look like NSW is getting closer to making decisions.  
  • Roughly 5% in Victoria is a very hefty expense.  
  • The government revealed its plans, including: 
  • Initially, buyers would have a choice: a one-off whopping stamp duty bill, or a relatively modest annual property tax. 
  • If a buyer chose to pay property tax, their property would forever be subject to the annual tax. 
  • The rich would initially be excluded – 20% of homes, based on their price, would be required to pay stamp duty. 
  • Some people buying their first homes could be given a choice: receive a $25,000 grant for stamp duty or furniture, whitegoods and other new-home requirements. (this would replace an existing tax-break for first-home buyers). 
  • The idea of having an ongoing fee could be a challenge for many households. Rather than having a significant once off upfront fee. 
  • Stamp duty is a very blunt instrument and an annual tax makes sense in the long-run and it’s probably going to be difficult for managing the change.  
  • The properties that will be in demand will be those that you don’t have to pay the stamp duty on – there will be unintended consquences, there’s not perfect way to make the transition I don’t think. 
  • Increase to superannuation contributions on the part of the employer 
  • Kicked the can down the road and now we’re back to the can. Would that have any impact on our market? It would be naïve to say it won’t if we see the minimum contribution increase.  
  • Melbourne house prices on the rise again 
  • As predicted, Melbourne has joined all other capital cities across Australia, with CoreLogic’s hedonic index showing Melbourne’s property values growing once more.  
  • Through the beginning of November Melbourne has outperformed Sydney, Brisbane and Adelaide.  
  • As we noted a few months ago, one upside of the larger market reduction in Melbourne, is the increased opportunity on the upside.  
  • Auction clearance rates in Melbourne are now approaching 70%, just lagging Sydney’s.  
  • CoreLogic tells us that the Melbourne market bottomed on October 18 and that the Australian market bottomed around a week earlier, although we called the bottom publicly in the Podcast in early October. Our belief is the data is always behind the actual marketplace, due to the lag time between sale and settlement dates before data is logged.  
  • This leaves us with Covid Australia property values declining a mere 1.7%, and the eight capital cities showed a modest 2.8% drop from peak to trough.  
  • As we have been commenting on since April?? via our Podcast and newsletter, this is in line with our expectations.  
  • It’s worth noting that Australian property prices have shown no net growth in values for four years now.  
  • Subsequently, all the banks and forecasters have revised their expectations in line with our views.  
  • So, get set for the resumption of value growth at the rate of knots we saw prior to Covid hitting Australian shores.  
  • This feeds into one of our hypothesis held for some time that markets now rebound faster than ever before because of the hugely increased access and accuracy of information. The examples of this phenomenon continue to grow. 
  • Responsible lending being repealed 
  • New ASIC chairwoman sounded defeated by government and the banks, just saying that they just need to let lenders lend, in essence. The writing is on the wall, ASIC recent chairman got in trouble for spending some money on his own personal tax bill, which has not helped ASIC’s authority. 
  • Apartments 
  • NAB’s Mr McEwan sounded a warning on CBD apartment prices, putting upward pressure on the prices of homes in middle and outer ring suburbs. Often when a market is under pressure the weakest assets will show the poorest form, and apartments have really stood out as the poorest performers during this period.  

David Johnston- The Property Planner’s Golden nugget: if we do see significant price rises that we expect, and just picking up where the property market left off leading into Covid, we had seen price increases of around 10% particularly in Melbourne and Sydney, we’re likely to see macro prudential APRA intervention to slow it down again, it’s now proven that it works, and that was one of my predictions at the start of this year, that we would see it at the end of this year, but I didn’t predict covid – so I think we’re likely to see that at some point at the end of 2021 and 2022. And it’s worth noting that net property values when compared with CPI have not increased on average across Australia for 4 years, so that’s also another reason why we will see property growth.  

Cate Bakos – The Property Buyer’s Golden nugget: relates to understanding a property’s likely selling price and not making a rule of thumb estimate when you look at a quote range, because every agent, agency and property has its own unique set of background reasons for a price quote, occasionally you’ll purchase a property within the quote or at the base of the quote, so you need to understand is it an auction quote, is there a chance that it’s underquoted, is it a low reserve because the vendor is confident. These things need to be ascertained, and you can ask agents the questions and do your own research just on the sold tab as we’ve chatted about in past podcasts.  

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