A new report from Westpac has revealed that coronavirus restrictions, combined with soaring house prices and deteriorating affordability, has pushed the Australian housing market into “tricky territory.”
Westpacâs Quarterly Housing Pulse, released on 24 August, has revealed that Australians’ plans to buy a house have fallen to the second-lowest point since 2010. The report indicated that the property market will continue to lose momentum while lockdown restrictions were in place but should ‘snap back’ to more bullish conditions once restrictions are eased.
The report suggests that while COVID-19 related restrictions have had some impact, higher prices and declining buyer sentiment remain the primary causes of the increasing lack of confidence in the market.
Westpacâs âtime to buy a dwelling indexâ showed an alarming 14.1 percent decline over the three months leading to August, with the previous three months showing similar rates of decline. Westpac senior economist Matthew Hassan said that “the steep fall is a clear warning that deteriorating affordability is starting to weigh heavily on buyer sentiment amongst owner occupiers.”
Affordability has now become a major concern in Sydney and Melbourne where real estate prices have soared to record levels over the last 12 months. However, demand continues to outpace supply in a thin market with sales outstripping new listings by about 20 percent.
In other parts of the country affordability is also starting to become an issue, with house prices in Canberra and Hobart skyrocketing by almost 30 percent in the 12 months to 30 June. Brisbane and Perth have seen a similar rapid increase in prices over the same period, as has Adelaide.
Itâs not just Melbourne and Sydney, but some parts of the country have seen price surges they never have before, like Adelaide, which is usually a sleepy hollow. Itâs a market that has never done the things it has done recently.
Westpac senior economist Matthew Hassan
Mr. Hassan said that even though market conditions may look similar, the other capitals have further to move before they faced similar affordability issues as Sydney and Melbourne. The house prices in other capitals were far below Sydney and Melbourne, but it is expected that the price gains in these states are likely to remain stable once the market returns to a post-COVID normal.
Complicating matters further is a decline in job market confidence with the Westpac Melbourne Institute Unemployment Expectations Index rising 24.3% over the three months to August, indicating that more respondents expect unemployment to increase in the coming months.
Risk aversion continues to be on the minds of many in the community with the Westpac Risk Aversion Index remaining elevated, easing slightly from 43.7 in March to 40.9 in June, versus a long run average of 14.8.
With Australia’s vaccination roll-out accelerating, especially in NSW, the amount of people who are fully vaccinated could be near 80% by mid to late October, paving the way for the easing of lockdown restrictions in Sydney as the level of virus transmission slows.
