COVID ‘cloud’ weighs on spring housing season

In his outlook for the Australian property market this spring, the non-major lender’s general manager, home loans, Andrew Bartolo, said that while there is usually an onslaught of listings and buyers preparing to pounce during this season, this year could be different.

“The property market will be quieter due to the impact of COVID-19, particularly in Melbourne,” he said.

“Plenty of challenges remain, including high levels of unemployment, job insecurity and lower immigration, impacting people’s willingness to transact in property.”

Similar predictions were recently made by property research group CoreLogic, with head of research Australia Eliza Owen stating that the second round of restrictions across Victoria would likely create a weaker spring selling season than in previous years.

As Melbourne progressed through its stage 4 restrictions, national listings activity has diverged from typical patterns in the lead-up to spring.

“In the four years prior to the pandemic, the number of new properties listed for sale nationally has, on average, increased 6.3 per cent between late July and late August,” Ms Owen said.

“This year, however, the equivalent period has seen a 9.6 per cent decline in new listings nationally.

Mr Bartolo also noted that the property market will be at a “critical juncture” over the next few months as borrowers gradually wean off federal government support such as home loan repayment deferrals.

S&P recently warned that home loan delinquencies caused by the economic fallout from the COVID-19 crisis would mount in the final quarter of 2020. It added that borrowers had thus far benefited from fiscal stimulus and record-low interest rates.

“While COVID-19’s effect on employment and the broader economy has been significant, support to household income from enormous fiscal stimulus measures, including JobKeeper, and lower mortgage costs have eased debt-serviceability pressures,” the ratings agency noted.

However, it warned that mortgage arrears would begin reflecting the impact of the COVID-19 crisis later this year, with Victoria predicted to see the sharpest deterioration due to ongoing lockdown measures.

Analysts recently issued a warning that the banking sector’s commitment to extend loan repayment holidays for distressed borrowers could prolong the deterioration in credit quality and require higher loan loss provisions.

According to figures from the Australian Prudential Regulation Authority, only 8 per cent of borrowers on loan deferrals resumed full repayments over the June quarter.

Investment management firm Morgan Stanley expects that around 20 per cent of borrowers currently on repayment deferrals could default on their debt, sparking a $4.3-billion rise in credit losses across the big four banks alone.

Demand from first home buyers

Mr Bartolo expects demand to continue to flow from first home buyers (FHBs), who are incentivised by potential price falls, reduced investor activity, along with record-low interest rates and government grants.

This is in line with recent findings by Aussie, which saw a spike in home loan enquiries from this segment, defying the trend of record declines in overall lending volumes.

The major brokerage reported that enquiries from FHBs soared by 219 per cent from the previous corresponding period.

“COVID-19 has also led to a reassessment of life priorities,” Mr Bartolo said.

“New remote and flexible working arrangements have made buying in regional areas a more feasible and affordable lifestyle option, and as such we may start seeing more buyers making their move this spring.”

ME Bank’s latest Quarterly Property Sentiment Report found that 45 per cent of respondents were more likely to consider purchasing property in a regional area to save money and improve their lifestyle. This figure rose to 60 per cent among FHBs.

In a recent analysis on how stalled net overseas migration levels have impacted housing demand, CoreLogic head of research Tim Lawless said it had already changed demand patterns from borrowers.

“There are already signs that major regional centres are benefitting 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.”

Looking forward, Mr Bartolo has predicted an increase in property listings during spring but said he does not foresee new stock overtake current demand.

“But certainly, anyone listing will be met with a high degree of inquiry,” he said.

Commenting on what could lie ahead for the spring season, Ms Owen said recovery in transaction activity is likely to be weaker once restrictions are repealed in Melbourne this time around.

“That is because employment is taking another hit, consumer sentiment is dampened by the reality of a second outbreak of the virus, and a reduction in fiscal support is only a month away,” Ms Owen said.

“Ultimately, the second round of restrictions across Victoria is likely to create a weaker ‘spring selling season’ than in previous years.”

[Related: ANZ exec bracing for surge in loan deferral requests]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.