According to Chris Nicol, analyst at investment firm Morgan Stanley, demand-driven weakness in the housing would “retrace post-election gains” in residential property prices, which have begun to decline over the past few months in response to the economic fallout from the COVID-19 crisis.
Home lending growth has also slowed, with the latest Lending Indicators data from the Australian Bureau of Statistics (ABS) reporting that the value of home loan approvals slipped 4.8 per cent to $18.5 billion (seasonally adjusted terms) in April – the sharpest decline since May 2015.
The Reserve Bank of Australia’s (RBA) latest Financial Aggregates data also revealed that housing credit growth slowed to 0.2 per cent for the second consecutive month.
Mr Nicol noted that softness in the housing market would likely persist, with market conditions hinging on the rate of economic recovery.
According to Mr Nicol, fiscal policy developments over the coming months would be “critical” in determining the housing market outlook, with key relief measures, including JobKeeper subsidies and repayment holidays, due to expire in September.
Mr Nicol said he’s expecting the federal government to roll out further stimulus to ease mounting headwinds.
“We expect policy support to be tapered but not removed and would expect to see further housing support provided by governments, which should limit the extent of price declines,” he said.
Treasurer Josh Frydenberg recently revealed that the federal government has held discussions with Australia’s largest lenders and the RBA concerning the looming expiry of loan repayment holidays.
According to the latest data from the Australian Banking Association (ABA), banks have deferred repayments on over 700,000 loans ($211 billion), over 61 per cent of which are for residential mortgages.
When asked if the government believed loan deferral period should be extended, Mr Frydenberg said that such decisions would be left to the banks; however, Mr Frydenberg noted the difficulties facing borrowers employed in sectors facing longer-term challenges.
“We know that with the restrictions coming off across the economy, people are starting to get back to work, and that’s vitally important,” he said.
“But there are still some sectors, and obviously the workers in those sectors, who are doing it very tough, and we saw just this week the terrible news out of Qantas of 6,000 people losing their jobs.
“We’re going to continue to see some sectors really struggle as the international borders remain closed and people are affected by that.”
Morgan Stanley estimates that approximately 20 per cent of borrowers on repayment holidays would default on their debt, triggering a $4.3-billion rise in credit losses across the major banks alone.
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Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.