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<p>The Reserve Bank of Australia is under increasing pressure to raise the cash rate after headline and underlying inflation posted a stronger than expected result in the first quarter of 2022.</p><p>Concerns about the impact of inflation and potentially rapidly rising interest rates on the property market abound, but a myriad of micro and macro factors should be considered when weighing up the risk to housing values and possible mortgage stress. </p><p>What does this mean for the housing market?</p><p>“The strong inflation result puts additional pressure on the RBA to move on rates, particularly now that the underlying inflation rate is beyond the 2-3 per cent target,” CoreLogic’s head of research Eliza Owen said.</p><p>“While there are some potentially more transitory drivers of these high inflation numbers, such as fuel prices, other factors such as the high cost of new dwellings, rising rents and education costs take longer to have an impact. </p><p>“Considering the underlying inflation reading is likely to remain above the lower threshold of the 2-3 per cent target range, the RBA is facing mounting pressure to lift rates in the coming months. </p><p>“As we’ve noted in previous research, looking at the data historically suggests an inverse relationship between cash rate movements and property price movements. New demand for mortgages are expected to decline against a lift in the cash rate, adding further downwards pressure on the rate of housing price growth and prices later this year.”</p><p><strong>Impact of early and rapid rate hikes on house prices</strong></p><p>Even before the official cash rate target has been increased, a lift in average fixed mortgage rates, affordability constraints, lower consumer sentiment and higher levels of supply have started to put downward pressure on property prices, which have already<a href="https://www.corelogic.com.au/news-research/news/2022/Australias-smallest-cities-drive-growth-in-national-housing-values-as-Sydney-and-Melbourne-decline" data-mce-href="https://www.corelogic.com.au/news-research/news/2022/Australias-smallest-cities-drive-growth-in-national-housing-values-as-Sydney-and-Melbourne-decline"> </a>started to slip across Sydney and Melbourne, down -0.2 per cent and 0.1 per cent respectively in March.</p><p> Preliminary readings from CoreLogic’s daily HVI point to another monthly fall in housing values across these two cities in April.</p><p>A rate hike may trigger an earlier than expected decline in prices outside of Sydney and Melbourne, which can have a flow on effect for other cities to follow. </p><p><strong>Real house price falls</strong></p><p>The RBA noted in its financial stability review that a 2 percentage point rise in interest rates could see real housing prices fall by 15 per cent.</p><p> CoreLogic’s research director Tim Lawless says under this scenario, based on where national housing values were at the end of March, a 15 per cent drop in values would take housing values back to levels similar as March 2021. </p><p>A larger fall of 20 per cent could take national housing values back to similar levels as June 2017, while a smaller 10 per cent drop would see values at levels similar to June 2021 and a 5 per cent drop back to September 2021 levels.</p><p>However, the scenarios play out very differently across the capital cities, Lawless said.</p><p>“In markets where housing values have been rising faster, such as Brisbane and Adelaide, a 15 per cent decline would take housing values back to July and August 2021 levels respectively,” he says. </p><p>“In Melbourne, a 15 per cent drop could see values at a similar level as May 2017, or in the case of Perth, back to June 2009 levels.”<a href="//images.ctfassets.net/8pr762qjocl3/2Vxi4rPQwDgBtAGM2Pwjjt/b80939cb8775cd5a686c4d05fef52b85/RBA_governor_Philip_Lowe_has_warned_lenders_to_play_by_the_rules_as_the_housing_market_heats_up." target="_blank" rel="noopener" data-mce-href="//images.ctfassets.net/8pr762qjocl3/2Vxi4rPQwDgBtAGM2Pwjjt/b80939cb8775cd5a686c4d05fef52b85/RBA_governor_Philip_Lowe_has_warned_lenders_to_play_by_the_rules_as_the_housing_market_heats_up."></a></p><div id="5JAkPmWWf4CPAUj5MPv3xc"><picture><img src="//images.ctfassets.net/8pr762qjocl3/2Vxi4rPQwDgBtAGM2Pwjjt/b80939cb8775cd5a686c4d05fef52b85/RBA_governor_Philip_Lowe_has_warned_lenders_to_play_by_the_rules_as_the_housing_market_heats_up." alt="RBA governor Philip Lowe has warned lenders to play by the rules as the housing market heats up." data-mce-src="//images.ctfassets.net/8pr762qjocl3/2Vxi4rPQwDgBtAGM2Pwjjt/b80939cb8775cd5a686c4d05fef52b85/RBA_governor_Philip_Lowe_has_warned_lenders_to_play_by_the_rules_as_the_housing_market_heats_up."></picture><div><span style="opacity: 0.8;" data-mce-style="opacity: 0.8;">▲ RBA governor Philip Lowe: the official rate could rise as early as next week. <br><br></span></div></div><p><strong>How quickly and sharply can prices fall?</strong></p><p>The extent of any housing downturn will be dependent on where rising interest rates land, but also on a variety of other factors, Owen says.</p><p>Helping to offset the downside risk of higher interest rates are extremely tight labour markets, improving economic conditions and recovering migration rates which will progressively add to housing demand. </p><p>“Since the late 1980s, Australia has experienced national downturns that have ranged in severity from a 1.0 per cent peak to trough decline in 2015-16, a temporary correction following the first round of credit tightening via APRA’s 10 per cent speed limit on investment lending, to an 8.4% drop in national values between late 2017 and mid-2019,” she says.</p><p><strong>Mortgage repayment buffers</strong></p><p>Despite the expected increase in mortgage rates there is no expectation of a material rise in distressed listings being added to the market due to unemployment set to trend below 4 per cent, Lawless says.</p><p>“The RBA has recently noted in their latest financial stability review the median repayment buffer for owner occupiers with a variable mortgage rate had grown to 21 months of scheduled repayments in February 2022, up from 10 months at the start of the pandemic,” he says.</p><p>“With a two-percentage point rise in interest rates, the median repayment buffer would reduce back to 19 months, which is still substantial. With the median household well ahead of their mortgage repayments, the risk of households falling behind on their mortgage repayments is reduced.”</p><div id="1uqJQh1WPoPlKqNKgymJpX"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3pSS0BBpcr3EPF8GM7myTQ/f3253643a57ae95824650607b6eabe7e/land_market_story_hero.jpg" alt="Aerial view of Geelong where average land size and price have both increased. " data-mce-src="//images.ctfassets.net/8pr762qjocl3/3pSS0BBpcr3EPF8GM7myTQ/f3253643a57ae95824650607b6eabe7e/land_market_story_hero.jpg"></picture><div><span style="opacity: 0.8;" data-mce-style="opacity: 0.8;">▲ Despite the predicted rate increase, there has been no expectation of a rise in distressed listings.&nbsp;<br></span><span style="opacity: 0.8;" data-mce-style="opacity: 0.8;"><br></span></div></div><p><strong>Fixed-rate insulation</strong></p><p>Another factor helping to offset the downside risk is the rise in borrowers who have taken on fixed rate mortgages. </p><p>Fixed rate borrowing peaked last year at around 45 per cent of new housing credit. </p><p>A larger portion of borrowers on fixed rate mortgage terms should provide some insulation to rising variable mortgage rates, at least until their fixed term expires, at which time there could be a refinance shock. &nbsp;</p><p><strong>Mortgage stress levels</strong></p><p>The RBA has also pointed out that non-performing housing loans comprised only 0.9 per cent of the mortgage portfolio at the end of last year, which is below pre-Covid levels.&nbsp; </p><p>Additionally, almost all the borrowers who took advantage of lender forbearance provisions during the pandemic are back in line with their repayment schedule.&nbsp;</p><p>Furthermore, APRA data on quarterly residential property exposures also highlights that the portion of outstanding loans 30-89 days past due was sitting at a recent low of 0.4 per cent through the end of 2021, half of the portion reported in March 2020.</p><p>“Such low numbers imply borrowers are entering a period of rising interest rates from a relatively strong foundation,” Lawless says.</p><p><strong>Vulnerable households</strong></p><p>Households that have smaller or no savings buffers built up could be more vulnerable to mortgage distress as interest rates move higher, however a trend towards materially higher mortgage arrears or default would need a catalyst of worsening labourmarket conditions and higher rates of unemployment. &nbsp;</p><p>“With labourmarkets so tight, and likely to tighten further, the risk of higher unemployment remains low,” Lawless says.</p><p>“Additionally, a more substantial rise in wages growth amid such low unemployment should also allow higher risk borrowers to maintain their repayments.”</p><p><strong>Serviceability assessments</strong></p><p>Mortgage distress should also be minimised to some extent by mortgage serviceability assessments at the time of the loan origination. </p><p>All borrowers would have been assessed to repay their mortgage under a scenario of mortgage rates being 2.5 percentage points higher than the origination rate, and since October last year, borrowers were being assessed at mortgage rates of 3 percentage points higher.</p><p>Under these serviceability scenarios, borrowers should be able to accommodate higher mortgage repayments costs, although such as rapid rate of inflation could create some challenges for borrowers with thinly stretched budgets.</p>

CoreLogic’s research director Tim Lawless explains when a market has peaked, the biggest factors impacting Australia’s housing in 2022 and the trends property watchers should be keeping an eye on this year.

<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Australian housing values grew 22.1 per cent last year and the market is showing signs this extraordinary rate of growth, not seen since the 1980s, is slowing across most of the capital cities.</p><p>Yet as the rate of dwelling value appreciation slows, capital city and broad rest-of-state markets are still to peak, causing plenty of speculation about whether this will occur in 2022 and mark the start of a downturn.</p><p>Corelogic research director Tim Lawless explains when a market has peaked, the biggest factors impacting Australia’s housing in 2022 and the trends property watchers should be keeping an eye on this year.</p><h2><strong>When to call a peak in housing values</strong></h2><p>“To categorise a market peak across a region, we would generally be looking for a consistent trend in negative monthly movements,” Lawless said. </p><p>“To date, the quarterly trend remains positive across the major regions, with the only exception being Darwin houses, which is the only capital city housing sector to record a negative quarterly change.</p><p>“The Darwin reading can be more volatile than other cities due to the small size of the market, so it may be too early to call a peak in this market even though the quarterly growth rate has turned negative.”</p><h2><strong>Peak vs peak rate of growth</strong></h2><p>“Although we can’t see any evidence that specific housing markets have peaked, it is clear that most markets have moved through a peak rate of growth,” Lawless said.</p><p>“What I mean by that is the point at which markets achieved their biggest monthly growth rate. We saw most of the capitals moved through a peak rate of growth around March last year.”</p><p>Sydney’s monthly growth rate peaked at 3.7 per cent in March and has since reduced to 0.3 pert cent.</p><p>Melbourne’s monthly growth rate peaked at 2.4 per cent in March, reducing to -0.1 per cent in December, the first monthly decline since Oct 2020.</p><p>Perth’s monthly growth rate peaked at 2.7 per cent in February. After recording only a single month of decline, -0.1 per cent in October 2021, the monthly rate of growth has reaccelerated to reach 0.4 per cent in December.</p><p>Hobart’s monthly growth rate peaked at 3.3 per cent in March and dropped to 1.0 per cent in December.</p><p>Darwin moved through a peak rate of monthly growth in April at 2.7 per cent and was at 0.6 per cent in December.</p><p>Canberra moved through a monthly peak in March at 2.8% and was at 0.9 per cent in December.</p><h2><strong>Market exceptions and future expectations</strong></h2><p>“The only broad regions avoiding a slowdown in the pace of growth in housing values are Brisbane, Adelaide and regional Queensland,” Lawless said.</p><p>“These markets are benefitting from a healthier level of affordability compared with the largest capitals along with a positive demographic trend and consistently low advertised stock levels.</p><p>“We could see our two biggest capital city markets Sydney and Melbourne hit their peak later this year although the timing is highly uncertain and depends on a broad range of influences.”</p><p><strong>Historic periods of decline to trough for house prices</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/59209b94-c04d-4841-b949-c33d1bb621ff.jpg" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><sub><sup>^Source: Corelogic</sup></sub></p><h2><strong>Three main factors </strong></h2><p>“There are a lot of moving parts that will affect the trajectory of housing outcomes,” Mr Lawless said.</p><p>The three biggest factors to impact market movements are:</p><p>1. Policy-related factors such as interest rates and credit availability.</p><p>2. Market factors like the trend in advertised stock levels and housing affordability.</p><p>3. Economic factors such as labour market conditions and wages growth.</p><p>“Arguably, the surge in Covid cases associated with the Omicron variant could push some of these policy tightening decisions back, with APRA or the RBA unlikely to tighten their policy settings with so much uncertainty associated with the latest case numbers,” Lawless said.</p><p>“There is also some downside risk from a delayed economic recovery associated with less spending activity and heighted uncertainty, although a slower than forecast economic recovery implies rates would stay lower for longer.”</p><h2><strong>Key signals a market is approaching its peak</strong></h2><p>“Normally, housing growth trends will gradually slow before moving into a correction phase, which is what we are seeing at the moment,” Lawless said. </p><p>“However, this isn’t always the case. During periods of shock such as the GFC or early in the pandemic, housing trends turned quite sharply into negative territory.”</p><p>Other signs to watch for include:</p><p>• rising advertised stock levels</p><p>• affordability constraints</p><p>• weakening auction clearance rates, and</p><p>• softening vendor metrics such as longer days on market and larger levels of discounting.</p><p>“It’s fair to say we are currently seeing a softening in all of these metrics, albeit from an historically high base,” Lawless said.</p><p>“We also consider macro factors, which could have an impact on housing demand such as the potential for higher interest rates or tighter credit policies. </p><p>“Both of these factors have a high level of uncertainty at the moment, especially considering the latest wave of Covid cases associated with Omicron which could weigh down economic activity.”</p><p><strong>Historic periods of decline to recovery for house prices</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/48493c2c-c497-4697-9837-1c9911d71d42.jpg" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><sup><sub>^Source: Corelogic</sub></sup></p><h2><strong>What to expect after a market peak</strong></h2><p>“Once a market peaks, the typical trend is that values will experience a period of decline,” Lawless said.</p><p>“The duration and severity of the decline is dependent on a broad range of both macro and micro factors.”</p><p>Since the late 1980s, Australia has experienced national downturns that have ranged in severity from a -1.0 per cent peak to trough decline in 2015-16.</p><p>This was a temporary correction following the first round of credit tightening via APRA’s 10 per cent speed limit on investment lending, to the most recent -8.4 per cent decline experienced during the 2017-19 downturn.</p></div></div></div></div></div>

  Corelogic research director Tim Lawless explains when a market has peaked, the biggest factors impacting Australia’s housing in 2022...

Credit standards remain prudent, but higher household debt levels or a further rise in high-debt-to-income ratio lending could be a trigger for tighter credit conditions down the track.

<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>While credit standards remain prudent, higher household debt levels or a further rise in high-debt-to-income ratio lending could be a trigger for tighter credit conditions down the track.</p><p>The focus on housing credit policies is becoming more intense as property values continue to rise and mortgage debt levels increase faster than their long-term averages.</p><p>It’s rare for the RBA to make a statement these days without including a phrase about the importance of maintaining lending standards for housing loans. </p><p>The central bank’s latest statement following its September board meeting was no different and included the line: “Given the environment of rising housing prices and low interest rates, the bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”</p><p>Any tightening of credit policies would likely have an immediate dampening effect on housing markets, the extent to which would depend on the scope and severity of the tighter credit conditions.  </p><p>Through previous rounds of macro-prudential policies and the Banking Royal Commission, which saw housing credit harder to come by, the impact on housing activity and value growth was clear.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>Monthly change in national dwelling values</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/2af0db39-6e82-4f47-af9d-b9e3470de120.png" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><br>The first round of macro-prudential policy intervention (announced December, 2014), which involved a 10 per cent speed limit on annual investor credit growth, didn’t make an impact until mid-2015 due to the consultative approach of APRA.  </p><p>By May 2015 the rate of home value growth had started to reduce, moving into negative territory between November 2015 and April 2016.</p><p>The second round of macro-prudential policy announcements came in March 2017, which involved a 30 per cent benchmark on the flow of newly originated interest-only home loans.</p><p>The impact of this policy setting was more immediate, resulting in the pace of home value appreciations slowing markedly from the date of implementation. Consequently, national home values declined between late 2017 and early 2018.</p><p>Credit policy and home loan serviceability assessments were tightened further through the Banking Royal Commission and housing values again responded negatively.</p><p>Through each of these periods of credit tightening, the impact on housing trends was more evident in markets that had heightened exposure to the rules.</p><p>Sydney, for example, was the epicentre of investment activity, with investors comprising almost 56 per cent of mortgage demand in early 2015.  </p><p>Housing values in Sydney fell more sharply than the national average during each of these periods of credit policy adjustment as a result.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>Monthly change in Sydney dwelling values</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/f73781e6-7114-449b-b632-51628294308c.png" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><br>In the current environment, the risk for credit tightening is likely to be more focused on overall debt accrual across the household sector rather than investment lending or interest-only lending.  </p><p>The speed of net investment credit growth (ie: new lending less debt paid down) has increased, but remains below average, and has in fact trended lower over the two months to July, reflecting an appetite for debt reduction across the investment sector.  </p><p>On the other hand, owner occupier credit growth has been trending higher since June 2020 and has remained above the decade average since November last year.</p><p>The proportion of loans being issued with high debt-to-income ratios is another warning sign.  The latest data from APRA shows housing loans originated with a debt-to-income ratio greater than six times comprised almost 22 per cent of lending through the June quarter; a substantial lift from a year ago when only 16.0 per cent of new loans had a debt-to-income ratio this high.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>RBA housing credit aggregates<br></strong><sup>Month-on-month change in housing credit, owner-occupier versus investor</sup></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/da11d972-836b-46e4-b05d-314877bf1c68.png" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><br>Other metrics from APRA for the June quarter were less cautionary.  Interest-only lending fell to just 17.2 per cent of housing loans and mortgages with a loan-to-valuation ratio greater or equal to 90 per cent (ie: those purchasers who had a deposit of 10 per cent or less) have been trending lower since December to comprise only 8.6 per cent of new loans in the June quarter.</p><p>As the RBA governor highlighted in his testimony to the House of Representatives Standing Committee on Economics last month, the focus from the Council of Financial Regulators, which includes the RBA along with APRA, ASIC and Federal Treasury, is heavily focussed on the sustainability of trends in household borrowing.  </p><p>A sustained period where household debt grows at a faster rate than incomes implies a build-up of medium-term risks that could trigger a tightening of credit policy. </p><p>Data on household debt is current to March 2021 and will be updated later this month. The trend shows a subtle reduction in household debt levels since the recent peaks in mid-2019.  However, the ratio of household debt to annualised disposable household income did edge higher in March and has likely risen further.  Similarly, the housing debt and household debt-to-income ratios also reduced but have recently edged higher.  </p><p>Considering the pace of growth in housing credit against a backdrop of soft income growth, in all likelihood, household debt, (of which housing debt is the primary component) will be at or close to record highs by the end of 2021.</p><p>The likely response to these medium-term risks could be seen in higher serviceability assessments for borrowers—essentially raising the minimum interest rate used when assessing whether a borrower can service their loan, or portfolio level restrictions could be imposed on lenders, probably focused on establishing firm benchmarks on the proportion of high debt-to-income ratio loans that can be issued.</p><p>Either of these options would have an impact on credit availability and limit the loan size relative to a borrower’s income or servicing ability.  </p><p>Ultimately, stricter credit conditions, should they be introduced, would flow through to less home purchasing activity and add to the headwinds of worsening housing affordability, higher levels of newly built supply and stalled overseas migration. </p><p>Of course, the tailwind of persistently low mortgage rates and improving economic conditions once lockdowns are eased or lifted will help to keep a floor under housing demand.  </p><p>The RBA reiterated in their latest statement following the September board meeting that they still expect the cash rate to remain on hold until 2024 at the earliest.<strong></strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>Household debt-to-income ratio and<br>housing debt-to-income ratio</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/4b71049b-a083-40a7-9faf-297ad3eb1184.png" width="800"/></picture><div></div></div></div></div></div></div></div>

The potential impact of a change in macro-prudential policies on the housing market is increasingly under scrutiny…

What the Games Means for Brisbane’s Property Market 

<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>With the newly-announced <a href="https://www.theurbandeveloper.com/articles/brisbane-host-city-2032-olympic-games">Brisbane Olympic Games</a> some 11 years away, the flow-on effects are likely to be gradual and centred around significant infrastructure upgrades and the associated medium-term uplift in jobs and longer-term improvements in transport efficiency</p><p>The most significant positive influence on the housing market is likely to be seen in the years leading up to the 2032 Olympics, rather than during the four weeks of the Olympic and Paralympic games themselves. </p><p>Large infrastructure projects tend to have a positive influence on housing prices, with the extra requirement for workers creating additional demand for housing during the construction process. </p><p>Large projects also tend to leave a legacy of a permanent housing demand uplift, either through additional employment or via other benefits such as improved transport options and travel efficiencies related to transport infrastructure projects as well as additional amenity introduced to the area including social and retail outlets. </p><p>As more detail comes to light about where these projects will be located we should get a better understanding of the housing market opportunities, however, the obvious candidate for an uplift in demand is Woolloongabba and the surrounding suburbs. </p><p>The proposed billion-dollar overhaul of the Gabba stadium is set to be the epicentre of Olympic activity. </p><p>Along with the Cross River Rail terminal and plaza, this precinct is likely to see a lift in desirability. </p><p>The area is already popular with investors, with around two thirds of the housing stock in and around Woolloongabba being rented. The proximity of the Princess Alexandra Hospital and Mater Hospital provide a permanent level of localised housing demand, along with easy access to the Brisbane CBD, universities and Southbank precincts. </p><p>Currently, Woolloongabba unit prices are at the lower end of the inner south unit markets with a median unit value of $458,000; about $94,000 lower than Kangaroo Point’s median unit value, $85,500 lower than West End and $38,000 lower relative to South Brisbane. </p><p>The lower price point combined with upcoming capital investment on infrastructure are likely to be a popular combination with investors and developers alike. </p><p>Other areas set to benefit would be the proposed sites for athlete villages, earmarked for Hamilton and Robina, along with areas set to benefit from transport infrastructure upgrades including the Gold and Sunshine coasts via upgrades to the M1 Pacific Motorway and Bruce Highway which could be accelerated. </p></div></div></div></div></div>

The Olympics should work as a positive influence on Brisbane housing market conditions...

The past six months has seen the value of investor loans increase by 48.1 per cent according to Corelogic.

<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Owner occupiers have been the primary driver of the housing market rebound, comprising 76 per cent of all new home loans during the 12 months to March, 2021.</p><p>This compares to the decade average where owner occupiers have made up 65 per cent of demand; but the mix of housing activity is starting to change as investors become more active.</p><p>The past six months has seen the value of investor loans increase by 48.1 per cent while the value of owner occupier loans is up a smaller 29.7 per cent.</p><p>The March quarter alone saw the value of investment lending for housing surge by 28.7 per cent while the value of new owner occupier home loans was up a much smaller 12.4 per cent.</p><p>On an annual basis, the growth in the value of owner occupier lending (+55.6 per cent) is now roughly on par with the lift in investor loans (54.3 per cent) as investors play catch-up.</p><p>Despite the rise in investor lending, investment loans comprised only 25.9 per cent of the value of new mortgage commitments in March, up from a recent record low of just 23.1 per cent in January this year, but well down on the decade average and the historical highs recorded in 2015. </p><p>Historically, the share of investor activity peaked at 45.9 per cent, soon after macroprudential measures were announced by APRA in December, 2014. </p><p>The 2014 measures placed a 10 per cent speed limit on investment credit growth. </p><p>Although the share of investor lending staged a temporary bounce back in 2016, investor activity turned due to a second round of credit tightening in 2017, which focused on reducing interest only lending. </p><p>Coupled with a more cautious lending environment during and after the Royal Commission, the share of investors in the market trended consistently lower until February this year. </p><p></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/bddfdad9-c0b4-4b57-bdca-eb1a9d5ca600.png" width="940"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p></p><p>Investor activity remains below average across every state and territory, ranging from just 13.3 per cent of mortgage demand in the Northern Territory to 31.5 per cent of demand across New South Wales. </p><p>The loan commitments data shows investor demand remains concentrated in NSW with most of this activity likely to be concentrated within the Sydney region. </p><p>NSW has historically attracted the largest share of investors, with this group of buyers averaging 41.4 per cent of mortgage demand during the past 10 years and in March 2021, NSW was the only state where investors comprised more than 30 per cent of mortgage demand. </p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/eac4a036-2452-4120-9df3-06a9a410eb9b.png" width="940"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>The concentration of investors in NSW may seem a little counter intuitive. </p><p>Sydney is the most expensive capital city by some margin, implying the financial commitment is more significant than other regions. </p><p>It also has the lowest rental yields, signalling some imbalance between housing values and rental rates. </p><p>Where Sydney stands out is capital gains; Sydney has the highest average annual rate of capital gains during the past decade with house values averaging a 6.6 per cent rise each year and unit values averaging 4.5 per cent per annum. </p><p>With most investors focused on capital gain rather than rental return, this track record of growth might help to explain the popularity of Sydney among investors. </p><p>During the past 12 months, Darwin has recorded the most significant rate of capital gain, with house values up 18.2 per cent. </p><p>Regional Tasmania (17.8 per cent) and regional NSW (16.3 per cent) come in a close second and third. </p><p>Across the unit market, the swiftest rise in values has been in regional Victoria (13.6 per cent) and Hobart (11.6 per cent). </p><p>For investors more focused on cashflow opportunities, the higher yielding markets may be more attractive. </p><p>The highest capital city gross rental yields can be found in Darwin (5.6 per cent), Hobart (4.4 per cent) and Perth (4.3 per cent) for houses, while gross yields for units are highest in Darwin (7.2 per cent), Canberra (5.5 per cent) and Perth (5.4 per cent). </p><p>Yields are generally higher across regional markets, with regional Northern Territory (6.3 per cent) and regional Western Australia (5.9 per cent) recording the highest gross yields for houses. Regional WA also stood out with the highest gross yield for units at 8 per cent. </p><p>The total return, which provides a measure of the annual capital gain plus annualised gross rental return, highlighted the areas that have provided the best overall investment returns.</p><p>During the past 12 months, regional Tasmania (24.5 per cent) and Darwin (24.4 per cent) have provided the highest total returns for houses among the broad regions of Australia. </p><p>For units, the strongest overall returns during the past year have been in regional Victoria (19.3 per cent) and regional Queensland (16.9 per cent). </p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/0177a048-1d5f-4127-a519-0834fb4cba46.png" width="940"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p></p><p>Of course, past performance is not a guarantee of future performance. In fact, the best investment options may be those markets that have underperformed over previous cycles, providing a more affordable environment and generally higher rental yields. </p><p>Demographic factors, which have changed significantly during the past 12 months, will also play a role. </p><p>Overseas migration is set to remain low for at least the next year, implying regions with strong interstate and internal migration rates will have a higher level of housing demand.</p><p>South-east Queensland, Perth and regional areas of Victoria and NSW are all showing a positive demographic trend. </p><p>Economic conditions are also important. Regions with a diverse economic base are likely to show less risk relative to areas with shallow economies. </p><p>Trends in jobs growth, employment rates and capital investment such as significant infrastructure spending are also critical for picking areas ripe for investment.</p></div></div></div></div></div>

Owner occupiers have been the primary driver of the housing market rebound, comprising 76 per cent of all new home loans during the 12 months to March

How Will Stalled Net Overseas Migration Impact Housing Demand?

<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Recent forecasts from Treasury indicate annual population growth across Australia is set to slow from around 1.4 per cent pre-Covid, to 0.6 per cent through the 2020-21 financial year. </p><p>In raw numbers, that implies Australia’s annual population growth will reduce from around 350,000 in 2019 to 154,000 over the year ending June 2021—a reduction of 56 per cent relative to 2019 levels.</p><p>If the Treasury forecasts are right, this means the rate of population growth (a proxy for underlying housing demand) will be the lowest since 1917. </p><p>Most of the forecast decline in population growth is due to stalled net overseas migration, which is expected to drop from around 232,000 net migrants in the 2018-19 financial year to just 31,000 in 2020-21. </p><p>This will be disruptive to housing demand. However, the impact will not be evenly spread. </p><p>Nationally, population growth is comprised of net overseas migration plus the natural increase (which is simply births minus deaths).</p><p>Over the past thirty years, net overseas migration has accounted for 51 per cent of Australia’s population growth. Since late 2016, it has increased in importance, comprising more than 60 per cent of population growth.</p><p>To understand the impact of this dramatic shift to a key demand driver of housing, the composition of migration flows—and where migration is geographically centred—should be considered.</p><p>Importantly, in terms of composition, temporary migrants comprise the large majority of net overseas migration to Australia. </p><p>In 2019, roughly 70 per cent of Australian migrants arrived on temporary visas, with the large majority of these classified as students or visitors. </p><p>Permanent migrants comprised around 30 per cent of net overseas migration, with most of these arriving under skilled visa arrangements (45 per cent of permanent migrants) with the second-largest portion arriving under “special eligibility or humanitarian” conditions (28 per cent).</p><p>It is reasonable to assume the large majority of temporary migrants will not be purchasing a home in Australia; they rent. </p><p>Additionally, it seems most permanent migrants will initially rent. </p><p>Previous research from the Australian Treasury showed approximately 85 per cent of recent skilled migrants were renters, and around 80 per cent of those arriving on humanitarian grounds rented. </p><p>The same research showed almost 90 per cent of temporary skilled worker visa arrivals rented or lived in employer provided housing.</p><p>Intuitively, the longer the migrant has lived in Australia, the more likely they will be seeking to purchase a home.</p><p>Considering the substantial skew towards temporary migrants within the net overseas migration figures—as well as the assumption that most permanent migrants will initially rent rather than buy—the greatest impact from a sharp drop in migration rates is likely to be in weaker rental demand than demand for established home sales. </p><p>This also implies a sharp drop in demand for new home construction targeted towards the rental market.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>Annual net overseas migration</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/ae823dd8-ba7d-459e-a982-5ab4b7ee6c7a.jpg" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><sup><sub>^ Source: Corelogic</sub></sup></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Geographically, stalled net overseas migration will impact on Melbourne and Sydney the most. </p><p>Last year, 84 per cent of all overseas migration flowed into the capital cities, with three quarters of those capital city migrants arriving in Sydney and Melbourne. </p><p>Within the cities, the largest number of overseas migrants are generally centred around the CBD and nearby precincts—where high density housing options are common—and to a lesser extent, middle-ring suburbs close to educational precincts or transport hubs, such as Parramatta in Sydney, or Clayton in Melbourne.</p><p>The impact of the sharp fall in overseas arrivals can already be seen in surging inner-city rental advertisements, with rental listings more than doubling across some key inner city unit precincts. </p><p>Between mid-March and early August, the number of homes available for rent in Melbourne’s Southbank rose by 117 per cent to reach 1,230 advertised rental listings. </p><p>Rental ads were up 111 per cent across the Sydney CBD/Haymarket/The Rocks region to reach 776, and Melbourne’s CBD saw a 105 per cent lift in advertised rentals, taking the total number of homes available to rent to 2,184.</p><p>High density, multi-unit dwellings in these precincts are popular with investors due to what has historically been strong rental demand. </p><p>This historically strong rental demand was underpinned by overseas student numbers, but also domestic students, visitors and workers requiring accommodation close to the CBD.</p><p>The demand shock in these areas has been broader than the impact of stalled net overseas migration. </p><p>Rental demand is also impacted by weaker labour market conditions amongst highly-casualised industry sectors such as food, accommodation, arts and recreation workers. </p><p>Workers in these segments are more likely to be renters than home owners relative to other industries of employment. </p><p>Additionally, fewer workers may be demanding rentals in the CBDs due to remote working arrangements.</p><p>The rise in available rental stock in these precincts is already weighing on rental income. </p><p>Every capital city is showing a larger fall in unit rents relative to house rents through the Covid period to date, with a more significant difference in Melbourne and Sydney where unit rents are down more than 4 per cent since March.</p><p>The flipside is that outside of Melbourne and Sydney, housing demand derived from net overseas migration is less significant. </p><p>Regional markets comprised only 16 per cent of net overseas migration last year, with regional Queensland attracting the highest volume, which is likely due to more significant numbers of long-term visitors and those on a working holiday.</p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><strong>Net overseas migration by GCCSA region, 2019</strong></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><div><picture><img src="https://tud-prod-tudmedia-oj9w2zshuo0o.s3.amazonaws.com/raw/images/bf670f18-7340-48a5-85c9-54888bc0ca29.jpg" width="800"/></picture><div></div></div></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><sup><sub>^ Source: Corelogic</sub></sup></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>The outlook for overseas migration remains highly uncertain and dependent on international borders re-opening and, potentially, travel agreements being negotiated between countries. </p><p>Forecasts contained within the Economic and Fiscal Update from Treasury assumed Australia’s borders would re-open in January next year, but under strict quarantining rules. </p><p>Additionally, some states aim to open borders to foreign students, again utilising quarantining procedures to minimise the rise of importing the virus.</p><p>Open borders are heavily reliant on the virus being contained domestically and globally, or a vaccine becoming available. </p><p>While Australia’s virus curve is once again reducing, the global number of new virus cases is yet to trend consistently lower, although the statistics vary remarkably between jurisdictions. </p><p>Additional considerations need to be made based on looser domestic labour markets. </p><p>The unemployment rate is expected to remain elevated for several years, implying less requirement for skilled migrants.</p><p>Also visitor numbers could remain lower than normal for a prolonged period of time due to less appetite for travel amidst strict quarantining rules.</p><p>The implications of net overseas migration remaining well below average are broad-ranging. </p><p>Population growth has been a longstanding driver of economic growth for Australia, underpinning residential construction activity and rental demand.</p><p>From a housing market perspective, the likely outcomes of low net overseas migration will be:</p><ul> <li><p>A higher volume of rent listings, and falling rent values across key inner-city precincts. This phenomenon is already being observed, particularly across inner Sydney and Melbourne. <br>Once foreign student arrivals start to normalise, rental demand in these areas may improve. In the meantime, investors who own property in these locations are likely to be facing high vacancy rates, lower rents and reduced ability to service their mortgage. This may result in more distressed sale listings in these regions.</p></li><li><p>A higher proportion of units may settle with a valuation lower than the contract price. Many of the aforementioned inner city precincts are toward the end of a surge in new apartment supply. ABS building activity data showed there were more than 50,000 units under construction across NSW at the end of March, and just over 45,000 across Victoria. A large proportion of these are high-rise projects in inner city locations. Many of these yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downwards pressure on property values.</p></li><li><p>The residential construction sector is likely to face challenges due to reduced demand, although this impact will be uneven. Demand for “investor grade” unit projects is likely to remain low for an extended period. However, demand for owner occupier style multi-unit dwellings, which are more often lower density, built with higher specifications and in prime locations should be less impacted. Greenfield housing estates are also less impacted from reduced net overseas migration, with early reports that the HomeBuilder grant, together with low interest rates and first home buyer incentives, are providing a solid boost to demand. Developers and builders may need to pivot towards these more active sectors, at least while net overseas migration remains low.</p></li><li><p>Organic drivers of housing demand are likely to become more important. These include the rate of natural increase and interstate/intrastate migration. Both of these components of population growth are also being disrupted, with expectations of a lower fertility rate due to the recession, and current restrictions on interstate movements. However, it is logical to assume that internal borders will open more quickly than international borders. Internal migration flows are influenced by a range of factors, but local economic and labour market conditions are key drawcards, as well as lifestyle and housing prices. There are already signs that major regional centres are benefiting from increased demand as some people look to escape the large cities, taking advantage of remote working opportunities, more affordable housing options and lifestyle considerations.</p></li></ul></div></div></div></div></div>

Forecasts from Treasury indicate annual population growth across Australia is set to slow from around 1.4 per cent pre-Covid, to 0.6 per cent...

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<div class="row" data-reactroot=""><div class="cell cs12 cx12"><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>If housing values continue to rise at the same rate recorded over the past three months, national dwelling values could reach a new record high in six months time. </p><p>Based on Corelogic’s home value index, national dwelling values remained 5.7 per cent below their peak at the end of October. </p><p>With values rising by 2.9 per cent over the past three months (averaging a rise of just under 1 per cent per month), it would take approximately 6 months for housing values to return to their historic high.</p><p>Most of Australia’s capital cities have recorded a rise in dwelling values over the past three months, with the only exceptions being Perth and Darwin, where values have been trending lower since mid-2014. </p><p>While values continue to reduce, housing affordability is continuing to improve and buying opportunities are becoming more plentiful.</p><p>The same can’t be said of Hobart and Canberra which are the two capitals where housing values are already at new record highs. </p><p>Hobart values recorded only a mild correction of 1.3 per cent from peak to trough, with the market reaching a new record high in October 2019. </p><p>Similarly, Canberra housing values recorded a peak-to-trough decline of only 1.5 per cent during the downturn, and moved through a new record high in September this year.</p><p>Across the remaining capital cities, Melbourne is on track to stage a full recovery the earliest. If the current run rate of growth continues, Melbourne’s housing market will recover in January. During the correction,</p><p>Melbourne housing values fell by 11.1 per cent from peak to trough and remained 5.8 per cent below their peak in October. </p><p>Dwelling values across Melbourne’s inner precinct were only 1.5 per cent below their peak in October, and this sub-region is on track set a new valuation benchmark by the end of November; the earliest of any of Melbourne’s sub-regions. </p><p>Related: <a href="https://theurbandeveloper.com/articles/house-prices-make-biggest-jump-in-4-years">House Prices Make Biggest Jump in 4 Years</a></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><table><thead><tr><th></th><th>Months to recovery</th><th>3 months to October</th><th>From market peak to October</th><th>Date of peak</th></tr></thead><tbody><tr><th>Australia</th><th>6 </th><th>2.9%</th><th>-5.7%</th><th>October 2017</th></tr><tr><th>Sydney</th><th>6</th><th>6.6%</th><th>-10.4%</th><th>July 2017</th></tr><tr><th>Melbourne</th><th>3</th><th>5.5%</th><th>-5.8%</th><th>November 2017</th></tr><tr><th>Brisbane</th><th>4</th><th>1.1%</th><th>-1.6%</th><th>April 2018</th></tr><tr><th>Adelaide</th><th>43</th><th>0.1%</th><th>-1.2%</th><th>December 2018</th></tr><tr><th>Perth</th><th>N/A</th><th>-1.7%</th><th>-21.6%</th><th>June 2014</th></tr><tr><th>Hobart</th><th>&lt;at peak&gt;</th><th>1.0%</th><th>&lt;at peak&gt;</th><th>October 2019</th></tr></tbody></table></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p><sup><sub>^ Months to recovery is calculated for regions with a positive gain in property values over the three months ending October, assuming values continue to rise at the same rate as the most recent three month trend.</sub></sup></p></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><hr/></div></div></div><div class="row ci"><div class="cell cs12 cx12"><div class="ci cl"><p>Despite the earlier recovery period across the inner precinct of Melbourne, the prestigious inner east is recording the fastest rate of growth, with values up 8.3 per cent over the past three months and on track for a recovery within three months.</p><p>Brisbane is showing the next fastest recovery time frame; not because values are rising rapidly, but mostly because the correction in values across Brisbane was quite shallow (down 2.9 per cent from peak to trough). </p><p>The past three months of gains (+1.1 per cent or 0.4 per cent per month) has put Brisbane housing values on a path to recover within the next 4 months.</p><p>Sydney’s housing market is on track to post a recovery within six months, or around April next year if the current pace of growth continues. Housing values are trending higher rapidly, up 5.0 per cent over the past three months, however the correction was more substantial across Sydney, with housing values falling by 14.9 per cent from peak to trough. </p><p>Sydney dwelling values remained 10.4 per cent below their 2017 peak at the end of last month.</p><p>The recovery trajectory in Adelaide is looking more drawn out, with values rising at the quarterly rate of only 0.1 per cent.</p><p>Although housing values are down only 1.2 per cent since peaking, such a sluggish rate of appreciation is likely to see a prolonged recovery phase. </p><p>Despite what looks to be a long recovery period, two of Adelaide’s sub-regions have already reached new record housing values. Both the North and South of Adelaide posted a new record high for housing values in October this year.</p><p>A recovery in the housing market should help to provide some support for Australian economic conditions, boosting household wealth which will potentially lead to improved confidence and a greater willingness from households to spend, while also supporting the residential building and development sector where dwelling approvals have tanked.</p><p>On the flipside, for non-home owners, a recovery in housing values implies the affordability dividends provided by the recent housing downturn are now a thing of the past. </p><p>With housing values rising rapidly in some areas, we could see less first home buyer participation in the market as affordability pressures start to dampen activity across this important sector of the market.</p></div></div></div></div></div>

If housing values continue to rise at the same rate, national house price could reach a new record high in six months... 