Sydney housing resilient in lockdown

Westpac’s Housing Pulse report for August 2021 has examined the impacts of the lockdown in NSW and Melbourne on the housing market, including auction markets, prices and listings.

The report has revealed that while auction volume turnover in Sydney has reduced by about 30 per cent up to 22 August on its May level, this fall is milder than the 50 per cent drop seen during the 2020 national lockdown, and even deeper drops seen during Melbourne’s second wave outbreak.

Of note is that turnover has continued to remain above the average levels seen in 2019, with over 500 properties going to auction each week in Sydney. About half are selling prior to auction, while between 150 and 200 properties have been proceeding to auction online, while the remainder has been withdrawn.

The level of auction withdrawals has cooled considerably in Sydney, but the Westpac report assessed that it has been “quite resilient” overall, and close to the capital city’s long-run average.

CoreLogic data for the week ending 22 August revealed that there were 529 properties taken to auction, with a preliminary success rate of 81.7 per cent, while only 1.1 per cent were postponed to a later date and 13.7 per cent were withdrawn.

On the other hand, the Melbourne market has seen a more material weakening during its recent restrictions, the report said.

The fact that private property inspections (limited to one person) are still allowed in Sydney has resulted in a “remarkably different” outcome in auction results, compared with Melbourne where inspections are not allowed during lockdown, according to CoreLogic.

Data on listings in Sydney has broadly corroborated with auction volumes, with new listings down 32 per cent from their May level but still well above last year’s lows.

The listings decline in Melbourne has been more subdued, but repeated lockdowns in recent has resulted in large swings, according to the report.

House prices largely unaffected

House prices have been less impacted by lockdowns, with the report stating that there is “clearly considerably more inertia to prices”, compared with market activity which has shown large swings during lockdown disruptions.

For example, in NSW price growth is set to hit 20 per cent a year in August, while turnover soared to a 19-year high in July to be 45 per cent above pre-COVID-19 levels.

However, there were pockets of weaknesses in July in Sydney, particularly in areas that have been hardest hit by the latest Delta wave of the coronavirus.

Unit prices declined slightly in a couple of areas in the South and West (particularly Fairfield) but this was more than offset by gains across the wider metropolitan city. But month-to-month gains for “top tier” properties have moderated compared with the levels of increases seen at the start of the year.

Regional NSW has also performed strongly, but the performance has moderated slightly in Byron Bay, which has been outperforming the rest of the region.

According to CoreLogic, home values increased by 0.3 per cent over the week ending 22 August, while there was a 1.4 per cent monthly increase. Year to date, house prices increased by over 15 per cent.

Housing market in ‘tricky’ land

Demand has outrun on-market supply significantly in NSW, with sales beating new listings by around 20 per cent, and the number of listings down to just 1.8 months of sales (although the lockdowns are disrupting both metrics).

The NSW Consumer Housing Sentiment Index has pointed to slowing momentum in the near term, driven mainly by a sharp fall in views on “time to buy” as affordability pressures dent property purchasing intentions.

Commenting on housing trends amid lockdowns, Westpac senior economist Matthew Hassan warned that housing markets are entering “very tricky” territory as lockdown disruptions have begun to clash with a housing boom that is beginning to show signs of affordability constraints.

He added that it would be difficult to gauge whether underlying conditions are “hot or cold” for markets that are essentially locked down in the coming months.

He said: “On balance, we expect the situation to see a temporary loss of momentum rather than a correction in the most heavily impacted areas, and a rapid snapback once restrictions ease.

“Thin trading means some sub-markets will be more susceptible to weakness near term, particularly where economic pressures are intense and the virus outlook uncertain. However, thin trading also means even lower ‘on-market’ supply that could be a bigger issue once activity rebounds.”

Prudential policy to re-enter the scene in 2022

While the COVID-19 situation has become the dominating issue since June and July, Mr Hassan said that prudential policy is still likely to come back into focus in 2022, and some tightening in policy likely around mid-2022 (as previously predicted by the major bank).

The bank’s central view is that the current outbreak and vaccine-led reopening would have few lasting effects on housing, Mr Hassan said.

“With affordability stretched, this is expected to see a sustained slowing in price growth before the start of a modest correction as interest rates start to rise in 2023,” he said.

While COVID-19 disruptions have temporarily relegated macro-prudential policy to the sidelines, Mr Hassan noted that the Reserve Bank of Australia (RBA) governor Dr Philip Lowe highlighted that while he did not see any evidence of a deterioration in lending standards to date, the sustainability of aggregate growth was also an issue.

In particular, Dr Lowe said that if the regulators saw a large and sustained gap in household credit growth relative to income growth, they could explore policy responses to tackle it.

[Related: Home buying sentiment slides: NAB]