Hot housing market to carry momentum into new year

Cheap debt, government payments and a pandemic seemingly at bay are creating ripe conditions for a surging housing market in the years to come, industry experts say.

Home loan lending is up 25 per cent since the beginning of the year, according to the Australian Bureau of Statistics (ABS), and the banking industry is expecting the momentum from a bumper season to carry into next year.

“We’ve never experienced pent up demand like this,” James Symond said, chief executive of Aussie Home Loans, the largest mortgage broker in the country.

“The current conditions are creating the perfect storm of positive growth drivers, which will propel our property markets into 2021 and 2022.”

Aussie recorded its strongest month for home loan applications and settlements. About $1.6 billion in home loans were settled in October, leading the brokerage firm to forecast settlements of $18 billion in the financial year ending in 2021.

The standout performance follows settlements of 32,000 loans valued over $6 billion, since the beginning of the year till 30 September, despite the impact on business brought by the pandemic.

"Competitive interest rates and the Reserve Bank of Australia’s record-low cash rate to 0.1 per cent may have been triggers for the increasing rate of home loan applications,” Mr Symond said.

“I believe the comeback for the Australian property market has certainly begun. From a demand perspective – there is quite a shift in sentiment.”

Aussie’s home loan numbers are in keeping with the industry’s. ABS figures for September -- the most recent available -- revealed $22.5 billion in new loans were taken out, a monthly increase of 5.9 per cent.

The optimism has reached big banks. Commonwealth Bank, which owns Aussie Home Loans, recently revised its forecast on the economy. The bank’s chief economist anticipates the economy will grow by 4.2 per cent in 2021, eclipsing earlier projections by an additional 1.7 per cent.

What’s driving people to buy a home now?

Record low interest rates and government subsidies were helping spur the housing market along, including HomeBuilder and First Home Loan Deposit Scheme.

About half of the $17.3 billion spent on owner occupier loans in September were for the construction of new homes, the ABS said, while about 35 per cent of applications were filed by first home loan buyers.

“Owner occupier housing loan commitments are at historically high levels, consistent with low interest rates and government incentives,” Amanda Seneviratne said, head of finance and wealth at the ABS.

“For example, it is likely that the (government’s) Homebuilder grant is contributing to increased demand for construction loans.”

The housing industry association (HIA), which represents the residential home building, renovation and development industry, said new home sales were 31.6 per cent higher in the three months to October, when compared to the same period a year earlier.

“The detached housing market continues to perform strongly and as it accelerates will pull the rest of the Australian economy forward into 2021,” Tim Reardon said, chief economist at HIA.

“HomeBuilder was the catalyst for improving consumer confidence in the housing market.”

But the praised subsidy is coming to an end

The $680m government measure, which offers eligible people $25,000 if they’re spending from $150,000 to $750,000 on a renovation or new build, is estimated to support 27,000 building projects.

Households are diverting the money they would’ve spent on holidays and entertainment on their homes. Small scale renovations were up 25 per cent compared to the same period a year earlier.

The federal government’s HomeBuilder grant is scheduled to expire on 31 December. As of October, approximately 11,000 applications had been submitted.

“The statistics show HomeBuilder is achieving exactly what it was designed to do,” Michael Sukkar said, the minister for housing.

“It is igniting the construction industry and helping to protect jobs right across the sector.”

The government has not committed to extending the scheme.

“A scheme that’s working well, that’s supporting the industry … all of those factors go in favour of the program,” Mr Sukkar said.

“... We’re keeping a really close eye on it and we’ll make a call as that date (31 December) gets closer.”

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