Sep 16, 2020
New figures out today on vacancy rates and they show that the national average is a further drop in vacancies.
Vacancies in very low in most locations across Australia and the monthly report from SQM Research shows they’re still falling – in most places.
The national vacancy rate for residential rental property from 2.1 per cent to 2 per cent during August.
Melbourne is only capital city where vacancies have risen, especially in in the CBD. City-wide, the vacancy rate rose from 3.1 per cent to 3.4 per cent, with its CBD recording its highest ever vacancy rate of 10 per cent, up from 8.8 per cent in July.
But it continues to be better news for property owners in other capital city CBD's – not so good if you’re a tenant.
Adelaide, Canberra and Hobart all have vacancy rates below 1%, which means there’s very little available for rent, while Perth and Darwin are both 1.1%. Brisbane is around 2%.
Sydney has dropped to 3.5% but there are significant sections of the greater Sydney area where vacancy rates are well below 2%.
And I know from my day to day research that there are many locations across Regional Australia where vacancies are under 1%.
Some regional centres have the tightest rental markets ever recorded. And all of this means there’s upward pressure on rents.
Competition over rentals in some of Australia’s regional towns is so fierce that some tenants are offering to pay three months’ rent in advance to secure a property.
Others are applying for rentals before they have even had a chance to look through them in person.
Eleven regional areas across NSW, Victoria and Queensland recorded rental vacancy rates of less than 1 per cent in July, SQM Research data showed, as people left the capital cities for less populated areas during the pandemic.
The region with the tightest rental market is in Far North Queensland, where residents face intense competition securing a rental. In Townsville, the vacancy rate was just 0.5 per cent in July.
Northern Queensland, which includes Charters Towers, Mount Isa and Flinders, was a close second with a vacancy rate of just 0.6 per cent.
There are also very tight rental markets in the Riverina in NSW, which includes Wagga Wagga and Griffith. The vacancy rate in that region was just 0.7 per cent.
It was also 0.7 per cent in the Northern Victoria region – think Bendigo, Shepparton and Wodonga – as well as the Sunshine Coast in Queensland.
Now, because rents are so strong in so many places, it’s now considered cheaper to buy than to rent – almost everywhere in Australia.
New research indicates that Australians in all capital cities, bar Sydney and Melbourne, would be better off buying a home than renting it.
That’s means it’s actually cheaper to buy than to rent in most places around Australia at the moment.
RiskWise CEO Doron Peleg says: “When it comes to houses, in many cases it is cheaper to buy than rent.”
RiskWise research found that interest-only repayments for both owner-occupiers and investors are lower than the annual rental cost in most areas.
What’s more, in all states and territories except for Sydney and Melbourne, even the principal and interest repayments are lower than the annual rent – that’s assuming that you have a 20% deposit.
In Adelaide, for example, annual rent on the median priced house is around $20,500. That’s nearly $10,000 more than it costs to pay the interest-only repayments, and $1,567 more than it costs to service payments on a principal and interest loan.
It’s the same in Perth, Hobart, Darwin, Canberra and Brisbane, where annual rent is thousands more expensive than servicing principal and interest repayments on a mortgage.
The Commonwealth Bank has revised its national property price forecast – with a more optimistic outlook, in what’s been described as a show of confidence for Australia’s property market.
The Commonwealth Bank now expects smaller price falls that it previously predicted, updating its national dwelling price to drop 6% from the April peak to a predicted trough in the first quarter of 2021.
So it’s suggesting that the national average situation – because economists always generalise and speak of Australia as a single market – will be a decrease of 6% between April 2020 and the beginning of 2021.
That’s a six percentage point improvement on its initial scenario – made back in April – of a 12 per cent fall in national property prices from peak to trough.
Now there’s a couple of things about that.
One is the way they generalise and make a prediction about “Australian property prices” as if the same scenario is going to happen right across this huge nation – which, I can tell you, never ever happens.
The second is that they have changed their forecast just a few months after making it. Economists, particularly bank economists, do this all the time.
They make a forecast about interest rates or GDP or unemployment or property prices – and then a few months they issue a new, different forecast – thereby rendering the earlier forecast redundant and a waste of time.
CBA’s head of Australian economics Gareth Aird says most state and territories’ property markets are performing better than expected.
Well, they’re not performing better than I expected, only better than the bank’s economists expected.
Aird says: “The reality is prices haven’t been falling as much as we thought they would. In fact, they’ve held up very, very well in some parts of the countries.
“Outside of Melbourne, most economies are open now. The evidence suggests that we won’t see falls of 10 or 12 per cent.”
Yes, in fact, in many parts of Australia, prices haven’t fallen at all. They have continued to rise.
In August, house prices fell in only two of the eight capital cities, according to CoreLogic data – and rose also in many of the regional markets as well.
And, yet again, Aird has explained the better than expected price performance by talking about the level of interest rates. The only thing economists know, or think they know, about residential real estate is they think it’s all about interest rates.
Let me tell you – Gareth Aird, head of economics at CBA, is a pretender when it comes to residential property. He clearly understands nothing.
In any case, for what it’s worth, CBA expects Canberra property prices to actually rise 2 per cent from April 2020 to the first quarter of 2021, while Hobart is forecast to rise half a per cent in the same period and Adelaide prices will remain flat.
So while it says Australian property prices will fall 6 percent, it then reveals it’s forecasting that they won’t fall at all in three of our capital cities.
The only places to record significant falls, in fact, will be Sydney and Melbourne and that will drag down the national average.
Now here’s another view on prices.
The chief executive of Australia's third largest credit union, People's Choice Credit Union, expects robust house price growth in regional areas close to capital cities as the work-from-home shift triggers permanent lifestyle changes.
Steve Laidlaw says demand for housing in regional centres in various states is rising and home lending activity in July and August was solid.
Large country towns which are relatively close to big cities - are the types of regional centres to be in big demand as people reassess their work-from-home options.
People's Choice Credit Union, which increased its home loan book by 4 per cent to $7.4 billion in the 2020 financial year, has 36 branches across South Australia, Victoria, the Northern Territory and the ACT.
And it’s suggesting a lot of that growth is coming from city people buying in regional areas close to the capital cities.
This provides further evidence of a trend that has been under way for a couple of years and has been exacerbated by the pandemic lockdown periods, which have opened the eyes of more people to the possibility of working from home.
I call it the Exodus to Affordable Lifestyle and it’s the biggest national trend impacting on real estate.
Home loans recorded the largest increase on record in July, the latest month for which we have official data from the ABS.
About $19 billion was spent on new home loan commitments in July and the ABS reveals that this was a 9 per cent month-on-month increase - the largest ever in the ABS data series on home loans.
The surge in home loan commitments excluded people refinancing existing mortgages and was bolstered by the strong presentation of first home buyers – which, as far I am concerned, is the most active cohort impacting property markets at the moment.
Amanda Seneviratne, head of finance and wealth at the ABS, says the increase was caused by the easing COVID-19 restrictions, including open houses and auctions, in most parts of the country.
She says: “July owner occupier home loan commitments rebounded with the largest month-on-month rise in the history of the series, as social distancing restrictions eased in most states and territories," she says.
“New loan commitments for owner occupier housing rose in all states and territories, except the Australian Capital Territory.
“The largest increases were in New South Wales, Victoria and Queensland.”
Now, according to CommSec's Ryan Felsman, home prices hit record highs in 11 regions across Australia.
He says Aussie home prices eased – overall - in August but at a local level there were many locations where prices rose.
Felsman says: Price weakness was most pronounced in the larger virus-affected Melbourne and Sydney housing markets.
But he says there were solid price gains across the relatively virus free capital cities of Canberra and Darwin. Prices in Hobart, Adelaide, Perth and Brisbane all remained stable.
Regional home prices also held up, highlighting the increasing divergence between virus ‘hotspots’ and the rest of the country.
In fact, home prices rose in 34 out of 88 SA4 regions in August with home prices lifting the most in the NSW Southern Highlands & Shoalhaven (up 1.2 per cent), South East Tasmania (up 1.1 per cent), Coffs-Harbour-Grafton (NSW), North West Victoria, Queensland’s Wide Bay and Darwin (all up 1 per cent).
He says: “It certainly appears that ‘lifestyle’ regions could stand to benefit from a potential virus-induced exit of people from big cities - encouraged by changing working arrangements - allowing them to work from home.”
Home prices hit all-time highs in 11 regions in August, including the ACT, Adelaide-South (SA), Brisbane-East (QLD), Brisbane – North (QLD), Moreton Bay – North (QLD), Capital Region (NSW), Central West (NSW), Coffs-Harbour Grafton (NSW), Richmond-Tweed (NSW), Gold Coast (QLD) and South East Tasmania.
Here's another view on prices.
Australian house prices have outperformed wages over the past financial year, new analysis shows.
In every capital city but two, house price growth was stronger in the year to June than wages growth, despite the pandemic.
Sydney house prices finished the financial year 10.5 per cent higher than the previous year, Domain data shows. But wages for NSW workers inched up just 1.8 per cent over the same period, ABS figures show, leaving housing outperforming wages by 8.7 percentage points.
Melbourne house prices were 6.9 per cent higher in June than a year ago, but Victorian workers’ wages only grew 1.8 per cent, meaning housing again outpaced income by 5.1 percentage points.
Aussies given a taste of working from home are so keen to keep their newfound flexibility that one in three would take a pay cut for the privilege.
Research figures from payroll and HR software company Ascender reveal 37 per cent of Australian workers would happily sacrifice a portion of their income to avoid going back to their workplace after the coronavirus pandemic – and another 30 per cent would consider it.
The idea is most popular among respondents aged 25 to 34 (45 per cent) and least popular among those aged 65 and older (25 per cent).
Ascender general manager Richard Breden says the research shows how much value employees place on flexibility and that some workers may ask to work from home as an alternative to a pay rise this year.
“I think many Australians are very aware of the challenges businesses face and the prospects of a pay rise in the near future are remote,” he says.
Borrowers who have deferred bank loans for six months or longer will not have their credit ratings affected until at least March 2021 under new guidelines announced by the Australian Banking Association.
The ABA announced it would extend the credit rating amnesty by a further six months, as the economic recovery from the COVID-19 pandemic takes longer than expected.
Customers granted loan deferrals on mortgages and other credit products in April were assured that banks would not report missed payments to credit agencies, provided they were up to date with payments when the relief was authorised.
Under the new guidelines, the amnesty is extended and customers who have fallen into arrears with repayments can escape a credit rating penalty if they restructure their loan or apply for another hardship program. Customers who have made partial payments during the loan deferral period will also exit with an improved repayment history.
This provides further evidence that economists who predicted a September Cliff with everything collapsing thereafter were, yet again, wide of the mark.
Many economists and other doomsday commentators claimed that the Federal Government and the major banks would switch off support at the end of September.
We now know that federal support programs like JosKeeper and JobSeeker will extend beyond this month and now the banks have revealed they will continue to support customers who are struggling in the pandemic conditions.
Just another example of how the attention-seeking economists got it so very wrong with their forecasts.
Bye for now.