Less Downturn, Longer Recovery for Housing Market

Victoria’s mounting Covid-19 cases will lead to slower economic recovery and a weakened outlook for the housing market, according to the RBA’s August statement on monetary policy.

Despite a near-term boost to some parts of the market in recent months, overall conditions remain weak.

The latest outlook changes were driven by six-week lockdowns in Victoria which cut construction productivity dramatically.

“More broadly, residential building approvals for both detached and higher-density housing have declined over recent months,” the RBA said.

“Furthermore, since the Home Builder scheme requires that work commences within three months of the contract date, higher-density construction projects are less likely to qualify.

“Developers have reported that sales of off-the-plan apartments have remained very soft, and some developers are delaying commencements of planned projects.

“The pipeline of residential work to be done declined over the past year because completions outpaced new approvals.”

Related: Covid-19 House Price Downturn Continues

Detached housing activity indicators

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ANZ head of Australian economics David Plank said the uncertainty facing the outlook is enormous.

“This is a slower recovery than the RBA’s baseline scenario in May, despite the initial hit to the economy from the pandemic being smaller than expected at that time,” Plank said.

“A key downside risk would be if there were ongoing cycles of infections and restrictions, which weighed on activity and household and business confidence.

“By contrast, positive surprises on the health front, at a time of unprecedented fiscal and monetary policy support, would help bolster the recovery.”

Plank said the RBA forecasts weak business demand for credit, similarly in housing finance.

“New housing loan commitments have declined since the end of March this year,” Plank said.

“Uncertainty about the economic outlook associated with the pandemic, low turnover and the softer housing price outlook has reduced the demand for credit.”

For the first time in 10 days, Victoria recorded less than 400 daily cases on 10 August following mounting restrictions in the area. Despite this, it was the most deadly day yet for Covid-19, with 19 deaths recorded.