Australia’s housing market finished the year on a strong footing with CoreLogic’s national home value index rising a further 1.0% in December; the third consecutive month-on-month rise following a -2.1% drop in dwelling values between April and September. 

Australian home values finished the year 3.0% higher with regional housing values rising by 6.9%, a rate of capital gain that was more than three times higher than the combined capitals, where home values were up 2.0% over the year.

CoreLogic’s research director, Tim Lawless, said the year was characterised by a mild COVID dip in values, but unprecedented volatility in the transaction space. “The number of residential property sales plummeted by -40% through March and April but finished the year with almost 8% more sales relative to a year ago as buyer numbers surged through the second half of the year. Despite the volatility, housing values showed remarkable resilience, falling by only -2.1% before rebounding with strength throughout the final quarter of 2020.”

Index results as at December 31, 2020

In retrospect, the rebound in housing market activity and dwelling values is unsurprising given the rapid and substantial monetary and fiscal response from the Government and policy makers. “Record low interest rates played a key role in supporting housing market activity, along with a spectacular rise in consumer confidence as COVID-related restrictions were lifted and forecasts for economic conditions turned out to be overly pessimistic. Containing the spread of the virus has been critical to Australia’s economic and housing market resilience,” Mr Lawless said.

As remote working opportunities became more prevalent and demand for lifestyle properties and lower density housing options became more popular, regional areas of Australia saw housing market conditions surge. “Regional housing markets had generally underperformed relative to the capital city regions over the past decade, but 2020 saw regional housing values surge as demand outweighed supply,” said Mr Lawless.

Month-on-month change in national dwelling values

On the flipside, higher density housing has generally underperformed throughout the year, with capital city unit values holding reasonably firm (+0.2%) while house values were up 2.6%. Excluding Melbourne, every capital city recorded a higher rate of capital gain for houses relative to units in 2020. According to Mr Lawless, the stronger growth conditions for houses over units is due to a range of factors. “Unit markets have historically been more popular amongst investor buyers; demand from investors has been weighed down by weak rental conditions across the unit sector along with high supply levels in some precincts. A transition of demand towards lower density housing options has helped to buoy house values.”

Change in dwelling values

Although housing markets are gathering pace, four of the eight capitals are still recording dwelling values lower relative to their previous peaks. Melbourne home values are still -4.1% below their March 2020 peak and Sydney dwelling values need to recover a further 3.9% before surpassing the previous July 2017 peak. Perth and Darwin values remain -19.9% and -25.7% below their 2014 peaks.

NEW LAW GIVES CONSUMERS ANOTHER REASON TO USE BROKERS

Great news for anyone planning to take out a home loan – new legislation means consumers are even better protected when they use a mortgage broker.

The Best Interests Duty, which took effect on 1 January 2021, legally obliges brokers to act in the best interests of their clients. This new law is on top of the National Consumer Credit Protection Act, which already regulates the conduct of brokers.

Brokers must “prioritise their consumers’ interests” if there’s ever a conflict of interests, according to the legislation.

But while brokers have to follow the Best Interests Duty – banks do not. A broker must give their client the best possible recommendation from all the lenders on that broker’s panel. However, a bank will recommend only its own products, even if there are better alternatives.

Brokers act in your best interests when recommending a home loan, and have a legal obligation to do so. Banks sell you products.

AUSTRALIA’S MORTGAGE MARKET HAS BEEN GETTING SAFER

Banks have raised their lending standards over the past decade or so, by reducing their volume of low-deposit and interest-only loans.

The share of home loans with a loan-to-value ratio (LVR) of 90% or more (i.e. a deposit of 10% or less) fell from 22% in 2009 to 9% in June 2020, according to data from APRA, Australia’s mortgage regulator.

Meanwhile, the share of interest-only loans was 46% in 2015, but averaged only 17% of new lending from mid-2017 to mid-2020.

That doesn’t mean it’s no longer possible to buy a home with a 10% deposit or take out an interest-only loan – it is. There are still lots of options available for that type of borrower.

BIG FALL IN THE NUMBER OF FOR-SALE PROPERTIES

If you’re in the market and you’re struggling to find property, there’s a good reason – the number of homes listed for sale had an unexpectedly large fall in December.

SQM Research has reported there were 272,999 properties listed for sale in Australia in December, which was down 7.9% on the previous month and 5.8% on the previous year.

This shortage of properties has helped drive an increase in prices – which is why some commentators expect listings to significantly increase in January and February, as home owners look to cash in.

If you’re planning to buy in 2021, here are three things to consider given the unusual conditions right now:

1.     Expect to pay a low interest rate for now but budget for future increases

2.     Be prepared to move fast if there’s a shortage of stock in your target area

3.     Consider how Covid-19 might affect inspections and auctions in your area

NEW HOME SALES JUMP 91.8% IN DECEMBER

The federal government’s HomeBuilder grant has led to the largest number of new home sales in two decades, according to new data.

The Housing Industry Association (HIA) has reported that:

· The number of new home sales in December was 91.8% higher than November

· December was the biggest month for new home sales since March 2001

· Sales volumes for 2020 were 32.5% higher than 2019

“This surge in sales can be attributed to HomeBuilder as households finalised contracts to build a new home before the 31 December 2020 deadline to access the $25,000 grant,” according to the HIA economist Angela Lillicrap.

HomeBuilder is continuing until the end of March, but with a reduced grant of $15,000.