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Larry Schlesinger| Australian Financial Review| 7 January 2022

https://www.afr.com/property/residential/red-hot-housing-market-to-cool-economists-analysts-2022-predictions-20220104-p59lu4

Rising mortgage rates, further macro prudential intervention, affordability constraints, a pick-up in new housing supply and an increase in property listings are expected to significantly cool the red-hot housing market in 2022, before a moderate downturn in 2023, economists and housing market analysts have predicted.

While none of them foresaw the extraordinary 22 per cent boom in national dwelling values recorded by CoreLogic over 2021 – most analysts were overly cautious, predicting single digit gains – economists such as AMP Capital’s Shane Oliver said the risks to forecasts this time round were more on the downside than the upside.

“Interest rates are still low, but fixed mortgage rates, which account for 50 per cent of new loans, are starting to rise,” he told AFR Weekend.

“Those are a lot more important and when they start to increase they have a dampening impact on demand. If the RBA hikes rates in November and December 2022, then prices could start to decline even earlier than expected.

He added: “For so long the housing market has relied on low rates. Each boom has been underpinned by easing monetary policy, which seems to be coming to an end.

Mr Oliver expects house prices to rise 5 per cent in 2022, before falling by up to 10 per cent in 2023.

“The fall in house prices in Melbourne in December could be a sign of things to come.”

As to the impact of the omicron variant on the housing market, Mr Oliver said that remained unclear, though it was likely to reduce buyer confidence, dampen listings and reduce transaction activity.

“The main risks to our forecasts are on the downside and could come from another big coronavirus setback to the economy or, alternatively, faster mortgage rate hikes, which is the biggest risk.

“The main risk on the upside would be a rapid surge in immigration post the federal election to make up for lost immigrants over the last two years, although this is likely to show up initially in higher rents and then higher prices with a lag.”

While Mr Oliver was well off the mark when he predicted just a 5 per cent rise in house prices in 2021, so too were many others.

ANZ’s head of Australian economics, David Plank, expected house prices to rise by close to 10 per cent in 2021. Tim Lawless, CoreLogic’s national research director, tipped gains of 7-10 per cent in 2021 and UBS Economics tipped 5-10 per cent growth.

Asked why, like so many others, he got his forecast wrong in 2021, Mr Oliver said a key factor was underestimating the role record low interest rates would play in fuelling demand.

“Also, we did not expect that the rotation in spending from services into goods would go on for so long, and that people would spend more on their homes and go and buy holiday homes,” Oliver said.

Veteran housing market analyst Louis Christopher, founder of SQM Research, was more bullish than some last year. He forecast average capital city house prices to rise between 5 and 9 per cent in 2021, led by Perth (8 to 12 per cent), Sydney (7-11 per cent) and Adelaide (6-10 per cent).

”Overall, we are giving ourselves a six out of 10 for the year,” Mr Christopher told AFR Weekend.

Asked why so many forecasters had missed the oncoming boom, Mr Christopher put it down, partly, to “so much uncertainty” at the start of 2021.

“We had the [Sydney] northern beaches lockdown, there was no vaccine released as yet, and the federal government was insistent that financial support would be reduced.

“So it’s hard to be extremely bullish in such an uncertain environment,” Mr Christopher said.

Border closures also made Mr Christopher cautious, given they mean very slow population growth and in theory less demand for housing amid forecasts that 170,000 new homes would be completed in 2021.

What was unexpected though was the extent to which people chose to spend their surplus disposable income on property.

“You couldn’t go on holiday, but you could buy a property.

“And perhaps we have all underestimated that property can be a ‘go to’ asset of choice in times of uncertainty,” Christopher said.

This year, Mr Christopher anticipates gains of up to 5 per cent under SQM’s base case modelling, and believes APRA will intervene in the market this year, as it did in October when it increased the interest rate buffer, to ensure an orderly slowdown.

“If the market takes off again in 2022 – a real possibility – then APRA will take additional action until they get the slowdown they want.

“One thing we know is APRA has been very clear that it wishes to reduce ‘risks’ in the market,” he said.

“As such, it is possible that a third [macro prudential] move or even a fourth move could also happen, especially if the RBA does not lift rates,” Mr Christopher wrote in SQM’s Boom and Bust Report 2022.

The cities most affected would include Sydney and Melbourne, he said, “as these are the cities where prices to incomes are most stretched”.

“We expect a [house price] correction in regional townships regardless of any APRA action,” Christopher added.

ANZ economists Felicity Emmett & Adelaide Timbrell expect modest gains in 2022 and then a fall of about 6 per cent in 2023.

“The 20 per cent-plus gains in house prices over the past year won’t be repeated in 2022,” they said.

“Affordability constraints are biting, new listings have lifted strongly, and macro prudential tightening and higher mortgage rates are set to constrain lending over the coming year,” the pair said.

HSBC chief economist Paul Bloxham, who had one of the most bearish forecasts at the start of 2021 (tipping growth of zero to 4 per cent) is one of the more bullish this time round.

He expects house prices to rise between 5-9 per cent in 2022 and then stay in positive territory in 2023, rising between 1-4 per cent.

“Our forecast has the RBA on hold at 0.1 per cent over 2022, offering some continued support to the housing market. At the same time, some fixed rate mortgage rates are likely to start increasing regardless.

“Overall, the combination of continued housing supply and limited population growth should see less upwards pressure on housing prices,” Mr Bloxham said.

The Commonwealth Bank’s head of Australian economics, Gareth Aird, expects house prices to rise a further 7 per cent in 2022, followed by an orderly correction in dwelling prices of 10 per cent in 2023.

“A gradual and shallow RBA tightening cycle, that takes the cash rate to 1.25 per cent by the third quarter of 2023, lies at the heart of our expectation that home prices will contract over 2023,” Aird said.

Nila Sweeney| Australian Financial Review| 13 January 2022

https://www.afr.com/property/residential/more-than-300-suburbs-hit-1m-median-price-20220111-p59ndy

More than 300 Australian suburbs have crossed the $1 million, median house value in just seven months, with Sydney and regional NSW adding the largest number of new entrants, data from CoreLogic shows.

Between May and December last year, 311 suburbs hit a median price of $1 million or higher, lifting the nationwide total 38.4 per cent to 1120.

A total of 77 Sydney suburbs joined the ranks, with most of the new entrants located on the Central Coast, as demand rippled out from the capital. There are now 417 Sydney suburbs with million-dollar-plus median prices.

Houses in Tascott, Woy Woy, Umina Beach and Lisarow in the Gosford area now have a million-dollar median, as well as those in Tumbi Umbi, Bateau Bay, Chittaway Point and Ourimbah in the Wyong district.

The number of million-dollar suburbs more than doubled to 116 in regional NSW, boosted by many Newcastle suburbs joining the club.Advertisement

Among them are New Lambton Heights, Lambton, New Lambton, Adamstown, Adamstown Heights and Carrington.

Brisbane also recorded a sharp rise in the number of suburbs hitting the million-dollar mark with 40 new entrants, taking its total to 91, while regional Queensland added 36 suburbs to 82.

It’s almost impossible to buy a house under a million dollars within a 10 kilometre radius from the CBD.

— Brisbane buyers’ agent Zoran Solano

They include suburbs from Brisbane’s north, south and west such as Sandgate, Shorncliffe, Nundah, Kedron, Sunnybank, Annerley and Enoggera.

“I’m not surprised to see a large increase in the number of suburbs reaching the million-dollar mark in Brisbane because of the strong growth we’ve had in the past year,” said Zoran Solano, buyer’s agent with Hot Property Buyers Agency based in Brisbane.

“A lot of these suburbs have been flying under the radar for so long, but are now rising strongly as buyers seek out cheaper options. At the moment, it’s almost impossible to buy a house under a million dollars within a 10-kilometre radius from the CBD.”

In Melbourne, 37 suburbs have joined the pool and lifted the total to 221, while Adelaide added 25 suburbs to 70 and the ACT recorded 18 new additions to a total of 45.

Melbourne’s north-east, north-west and outer east accounted for the majority of suburbs reaching million plus medians. Among them are Watsonia, Heidelberg Heights, Keilor East, Gisborne, Croydon and Selby.

In Adelaide, most of the newly minted million-dollar suburbs are located in the central and hills district, such as Teringie, Stirling, Nailsworth, Aldgate and Prospect.

Canberra’s new additions are mostly from the Gungahlin and Belconnen districts, such as Palmerston, Moncrieff, Throsby and McKellar.

In Perth, 10 new suburbs have crossed the million-plus median, and boosted the total to 52. They include inner Perth suburbs as well as those in the north-west and south-west such as Inglewood, Fremantle, Alfred Cove and Waterford.

Hobart’s million-dollar suburbs count has risen from two suburbs to seven. They include Newtown, Mount Stuart and South Hobart.

Considering housing values nationally have increased by 22.6 per cent since March 2020, it’s no surprise.

— CoreLogic’s Tim Lawless

Since the onset of the pandemic, the share of million-dollar suburbs has ballooned across the country, rising from just 16.2 per cent of all suburbs nationally in March 2020 to 29.8 per cent of suburbs in December 2021, the CoreLogic data shows.

“Considering housing values nationally have increased by 22.6 per cent since March 2020, it’s no surprise to see the number of suburbs with a median value of at least a million dollars increase so substantially,” said CoreLogic research director Tim Lawless.

“In cities like Sydney, where the median house value first rose above the $1 million dollar mark in 2016 and is now approaching the $1.4 million mark, a million-dollar purchase price for a house has become the norm.

“However in some regions, the rise in the number of suburbs where the typical house is worth more than a million dollars was quite a new phenomenon.”

In Hobart there was not a single suburb with a million-dollar, median house value before the pandemic, but now there are seven across the metropolitan area of Hobart, representing almost 15 per cent of all suburbs.

More than seven in 10 Sydney suburbs are now attracting more than a million-dollar median house price, compared to just one in two, before the pandemic.

But the jump in the share of suburbs with a million-plus median has been the most spectacular in the ACT, Mr Lawless said.

“Leading into the pandemic only 4.9 per cent of suburbs were recording a median house value of $1 million or more, with that figure rising to almost 54 per cent by the end of last year,” he said.

“The surge in suburbs with a million-plus, median value is a reminder of the worsening housing affordability pressures and the record level of housing debt in Australia.”

The proportion of suburbs with a median house value of $3 million or more rose to 2.3 per cent last December from 0.6 per cent in March 2020, with 94 per cent of these suburbs located in Sydney and 6 per cent located in Melbourne.

Despite a surge in house value during the pandemic, suburbs with a median value of $5 million or higher remained scarce, with only eight suburbs, which are in Sydney or 0.2 per cent of all suburbs nationally.

Sezen Bakan| The New Daily| 4 January 2022

https://thenewdaily.com.au/finance/property/2022/01/04/property-market-price-slow/

National property prices rose by more than 22 per cent in 2021, but new data shows the housing boom in Sydney and Melbourne is running out of steam.

Figures released by CoreLogic on Tuesday show prices in December almost reached a standstill in Sydney (+0.3 per cent) and went slightly backwards in Melbourne (-0.1 per cent).

Analysts said the data suggested Australia had entered a two-speed property market, with prices flatlining in the country’s two largest cities but continuing to rise in smaller cities such as Adelaide (+2.6 per cent) and Brisbane (+2.9 per cent).

House prices continue to slow

CoreLogic research director Tim Lawless said national annual property price growth is expected to slow to between 5 and 7 per cent in 2022, down from 22 per cent in 2021, largely due to rising fixed mortgage rates and tighter lending policies.

He said Sydney and Melbourne will be the most affected, due to poor affordability and a flood of new houses coming onto the market.

Although prices rose faster in other capital cities in 2021, Sydney and Melbourne currently have the highest median property prices, with Sydney’s sitting at more than $1 million and Melbourne’s at just under $800,000.

“So clearly, affordability is becoming a lot more challenging in those larger cities where affordability was already quite challenging leading into the pandemic,” Mr Lawless said.

He said last year’s rise in prices had made life difficult for first-home buyers, who now face more than a decade of saving to reach a deposit.https://e.infogram.com/30c36435-af56-4c16-a548-b7f738390072?parent_url=https%3A%2F%2Fthenewdaily.com.au%2Ffinance%2Fproperty%2F2022%2F01%2F04%2Fproperty-market-price-slow%2F&src=embed#async_embed

But the December figures show the fastest price rises are likely in the rear-view mirror for Sydney and Melbourne.

Mr Lawless said the slowdown in the two biggest cities could partly be attributed to a rush of new listings.

He told The New Daily the number of new listings in Melbourne and Sydney were more than 30 per cent above the five-year average, similar to other markets.

But fewer houses are exchanging hands there compared to other markets with stronger price growth, such as Adelaide, Brisbane, and regional Queensland.

CoreLogic said these were the only three regions across the country “where there is no evidence of value growth slowing just yet, with the monthly rate of growth reaching a new cyclical high in December”.

Mr Lawless said although these markets will slow this year, they will continue to outperform the broader property market.

Lagging property markets playing catch-up

Strong interstate migration and better affordability meant prices rose faster in southeast Queensland, Brisbane, and Adelaide than they did in Melbourne and Sydney in 2021, according to AMP Capital chief economist Shane Oliver.

These areas are now playing catch-up after a decade of weaker growth compared to Sydney and Melbourne, without the added “baggage” of extended lockdowns, Dr Oliver said.

“They’re seeing interstate migration is positive, and property is more affordable in those [Adelaide and Brisbane],” he said.

Dr Oliver said it is likely that Melbourne property prices have already peaked in the current cycle, or will have done by the end of January, with Sydney prices to follow by the middle of the year.

He said the cities could even see prices fall 5 to 10 per cent by the end of the year or by 2023.

However, Brisbane and Adelaide appear to be “on a roll”, and there’s potential for Perth and Darwin to continue to recover, he said.

This will split the national property market into two speeds.

“You’re going to see this ongoing divergence between cities, and in the meantime regional Australia will remain in strong demand,” Dr Oliver said.

What could change the course of the market?

Although property experts generally agree on this year’s market predictions, nothing is set in stone, especially with the ongoing pandemic.

Mr Lawless said COVID-19 is always going to be a “wildcard”.

He said a return of restrictions, especially regarding property inspections and on-site auctions, would lead to a temporary disruption of housing market trends.

This was seen in Melbourne and Sydney, which experienced a surge in listings in December after people were unable to sell their properties in spring due to lockdowns.

“When the reopening occurred, suddenly there was a flood of listings in both of those markets, which led to a surge in supply relative to demand,” he said.

“That caused the weakness in auction clearance rates and, consequently, prices weakened.”

With more than 47,000 new COVID-19 cases across the country on Tuesday, Mr Lawless said consumer sentiment and housing market activity is “very highly correlated”.

“So if there is a dent in the way consumers are feeling about their household finances or their ability to hold a job, then that will probably flow through to housing markets on the downside as well.”

The era of ultra-low fixed interest rates in Australia might be coming to an end as the last bank with a sub-2 per cent long-term rate has hiked theirs above that symbolic mark. And Australians are being warned not to miss out on some of these great deals.

Some of the longer-term fixed rates, often four and five years, are now starting to creep higher.

Previously, 32 lenders had long-term fixed raates beneath 2-per cent, including all the Big Four, but all have raised their rates in recent weeks.

CBA were the major mover in the market, hiking their four-year rate at the same time that they lowered their two-year rate. They then upped their three-year and four-year rates at the end of May, signalling to the market that Australia’s biggest bank were anticipating a higher price of doing business in the middle-to-long term.

The main driver of this is the fact that the ultra-low rates the Reserve Bank is lending to Australia’s banks are coming to an end.

At height of the Covid pandemic, the Reserve Bank announced a $200bn Term Funding Facility (TFF) – in effect a war chest of money it could lend to the banks at 0.1 per cent.  This dramatically changed the way Australians borrowed money. But, slowly, as we start returning to normal, the TFF is being wound back with consequent implications for borrowers.

Traditionally, the banks raise around $100 billion a year in wholesale funding from foreign and local investors but, due to the cheap money of the TFF, that reduced sharply to about $5 billion in the local market and $15 billion internationally.

As, the TFF is wound back, the return to normal may catch some borrowers unaware.

Fixed loans now represent about 35 per cent of all new mortgages. That represents a more than doubling of the level of fixed loans compared to before the pandemic as home buyers locked in loans, sometimes, below two per cent.

The Reserve Bank’s withdrawal of the TFF will mean the banks will be forced to source finance from the more expensive wholesale funding – with a consequent rise you and I pay for our home loans.

Rates will stay low for quite some time, but if you want to make the most of these ultra-sharp rates, now maybe time to talk to your broker about locking in a fixed rate.

There are some loans on the market with a rate less than two per cent – but who knows for how much longer.