Dear Reader,
Well, last week we found out how concerned the Reserve Bank of Australia (RBA) is about property…and how far they may be willing to go to protect it from a crash.
Through a series of documents received via a Freedom of Information request, the ABC reported the RBA contemplated pausing property sales. As they wrote:
‘In April, economist Nick Garvin wrote to colleagues, warning them the RBA should stop discussing the housing market as if it were operating normally, and calling for a halt — as happens to stock market trading in emergencies.
‘“I think it’s dangerous for regulators to be reporting on housing prices as though the market is currently functioning,” he wrote.
‘“I’d suggest we classify the market as paused, and treat the prices observed before the pause as the current prices — like how equity markets operate, but on a larger scale.”
‘The “pause” would not mean there was no activity, he wrote, “although it could indeed be wise to recommend that the [Government] temporarily halt all sales of established dwellings”.
‘Shutting down real estate sales would send a statement that “we’re in a different category of situation” and that normal reporting of clearance rates and average prices was “misleading”.
‘Even without shutting all sales, pausing reporting on the market would “be a fair classification” because real estate agents could not work normally.
‘“If people start mistakenly thinking that we’re experiencing a housing market crash, it’s not going to help things,” he added.’
As you may remember, a couple of weeks ago I wrote about how important the housing market is to maintaining consumer confidence. You can read all the details here.
So far, property sale prices are holding up.
Mainly because of government measures like JobKeeper, JobSeeker, and mortgage holidays, which take some pressure off having to sell.
Problem is that the pandemic isn’t affecting only properties, but businesses are struggling as well. And with fears of a second wave increasing, it looks like we are in for the long haul.
Much of what happens will depend on if the government continues support after September. Banks have already been preparing for a ‘tidal web’ of bad debts to hit them in September.
Consumer spending makes up much of our economy and that has depended on the housing market increasing, which has created a sort of wealth effect.
The hope is that by maintaining record-low rates, people will be able to service their mortgages. This is true, as long as people haven’t overstretched…and don’t lose their jobs. It’s why keeping employment is key.
But anyway, I digress.
Changes in the Rental Market
The sale market may be holding up, but there is a different story going on in the rental market.
According to CoreLogic data, the percentage of the rental stock market is increasing in Sydney and Melbourne, while decreasing or staying steady in other areas. Rental prices are falling and property owners are offering weeks of free rent to entice renters.
Remember, Melbourne and Sydney make up about 60% of the Australian property market, and much of the growth has come from investors and high immigration.
But population growth can reverse.
Spain had a population immigration boom between 2000 and 2008, increasing fivefold during this period. It fuelled a property boom.
But that foreign population boom started to reverse when unemployment increased.
Coronavirus has pummelled immigration growth.
There are no tourists, no backpackers, people are likely leaving Sydney and Melbourne for other areas maybe where they can find employment.
…and then there are the students.
Education is the third largest export for Australia.
According to data from the Australian Bureau of Statistics, student visa arrivals for April and May last year were 83,290. For the same period of 2020, that number hit 70…and then 15,370 temporary students left during that period…
International students do not only impact universities, but the housing market.
According to a report from the Mitchell Institute and Victoria University, international students make up over 30% of the population residing in many suburbs in cities. They spend $5.5 billion in property and another $5.5 on retail and hospitality.
How many of these rental properties will switch the ‘for rent’ sign to the ‘for sale’ sign?
It’s why the government already has plans to bring some of those students back, but that may not be enough.
I still think that Australia is well positioned to weather this global crisis well, but the huge concern here is our high debt in property.
Our whole system is based on confidence and with our banks very exposed to property, much of our confidence depends on the housing market.
| Best, |
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