COVID-19 impacts on the Australian economy & housing market

QBE are no longer issuing LMI to borrowers in covid-affected industries.
QBE reins in LMI coverage
Genworth will surely do the same and I guess the scope of blacklisted industries will broaden as this progresses. Not very consequential right now as few of these would-be borrowers would look to purchase in the next few months anyway, but it could have a huge impact on housing markets on the other side if they are slow to lift the restrictions. It would wipe out a huge chunk of the FHB market unless the government stepped in to broaden the First Home Loan Deposit Scheme or similar.

 

CoreLogic has released its full dwelling value results for March, which also captures the smaller markets and regional areas:

 

Thank you for your analysis. Would it make sense for the govt to induce inflation though, as this would lower the relative debt (and keep interests rates low to avoid bond failure?

 

I imagine most of those contracts have been signed pre-COVID

 

Yeah is Cameron Kushner from corelogic? I think it was him that was saying earlier in the week that there was a big change mid March.

I expect that quick drop is what is rankling the forecasters at AMP and UBS

 

I found this piece of information from Corelogic very interesting. There are three charts of the rolling 28-day change in the daily home dwelling index: 1) Sydney, 2) Melbourne and 3) Combined Capitals (5 I think).

The positive rate of change peaked in about late November 2019 and started slowing before COVID-19 was even heard of in late December 2019 (I think). Not only did it peak, it changed trend and reversed. The reversal is very distinct and sharply to the downside, not a sideways pause. Then after a period of time the rate of change turned upwards and started rising again, although this was short-lived. Finally, at what appears to be about the end of February 2020, the decline resumed. If a decline persists long enough then eventually the index values themselves start declining.

A way of viewing this is to consider that the home value indexes started their slowdown at the end of November 2019. Something caused this to commence in late November.

 

Thanks for the info Kit. Is there an indication from them how the daily index is calculated? I expect it lags but by how much? What's their data source?

 

Maybe something to take into consideration is with the 10-15% recovery in house prices achieved around that time purchasers were again starting to reach the max limit of their borrowing capacity (after APRA relaxed servicibility restrictions in mid-2019)

 

Which is not looking like a great decision. In an already struggling economy, making it easier to allow households to accumulate record levels of debt never seemed like a good idea with or without the benefit of hindsight.

 

No suprised. It is seasonal change. December and January are typically quiet months due to Christmas and New Year holiday. Then there was the worst bushfire season since October 2019 but really getting worse around December 2019. Things often pick up in February and March but then COVID-19 pandemic happened.

 

I think this is because there’s really only one way to go, not something broader.

Prices were rising at ~30% p.a at one point in a V shaped very fast recovery, particularly in inner Sydney.

Jan and Feb were great months too for the market, but slower rates of growth than earlier (which is normal if the benchmark is 30%!). Mind you, every other point in 30 years was a slower rate of growth so the rate of price growth was always going to come down from those lofty peaks (as there was a month recording fastest growth rate!)

 

Shane Oliver on Twitter

 

Online auctions work?

https://www.facebook.com/video.php?v=1125290437812370

 

Will this cause a massive spike in rents once this virus is finally under control. All Mum & Dad investor see each day on the TV news and newspapers is talk about tenants getting free rent and investors unable to move them on.

 

It's done for traditional auction houses but who knows, it's too early to say.

It would capture the REA all too often intimidating and aggressive behaviour. On the flip-side is the unprincipled REA could well have a mate or two online sitting at home on their laptop making dummy bids to inflate the price. Pre-registering bidders will not prevent the downside and hard for potential buyers to prove.

 

VICTORIA REIV AUCTION SNAPSHOT
89% CLEARANCE RATE

174 AUCTIONS HELD
407 LAST WEEK
770 THIS TIME LAST YEAR

Last week it was in the 30's . Why the jump?

 

As @Simon Hampel points out, they're just playing around with numbers.

 

The idea that property investors buying already built dwellings reduces rent is laughable nonsense. Unless investors are financing new builds (which is a very small % of overall investment) then they're not increasing housing supply. Every additional investor is one less family owning a PPOR so there's an additional house in the rental supply but also an additional family needing to rent. The houses don't cease to exist if they're not bought by investors. It's a zero sum game!

What we're seeing is an epic drop in rental demand. Overseas tourism and immigration has dropped to virtually zero. Overseas student numbers are way down. At the same time we're seeing more people lose their jobs and solutions like moving in with parents or shifting into shared accommodation is likely to increase significantly. At the same time significant supply is coming online in Sydney and Melbourne. What's the result going to be? A rental crash.

And we're already seeing it with Sydney rents for houses down almost 4% since the end of Feb and they're basically back to the lows of Sep last year. I'd be willing to bet the negotiated prices have come off even more than that:

SQM Research - Property - Weekly Rents - Sydney