A new report out this week from Deloitte Access Economics – and it suggests that Australia is in a much healthier economic position than most estimates predicted in the wake of the pandemic.
Deloitte partner Chris Richardson says the ACT and the Northern Territory appear to be best positioned for a successful rebuild from the pandemic impacts. Richardson says the overall outlook is “healthier and happier” than those from Treasury and the Reserve Bank for one critical reason: consumers are spending much more than expected. He says: “The central bit of the economy, and the spot where the fear may have showed up the most, has actually done surprisingly well.” Retail sales in May increased 5.8% on the figures from May last year, which Richardson says is “bloody miraculous”.
And I would tend to agree.
Deputy Reserve Bank governor Guy Debelle also says the economy’s performance “turned out to be somewhat better” in the June Quarter than expected, but suggests the government will need to extend its support for the economy. The RBA had originally forecast that hours worked would decline by 20 %, but recent figures suggest a 10% trough is more likely. The unemployment rate rose to a 19-year high of 7.1 per cent recently, but that too was better than many economists had predicted.
Another sign of better performance than expected is with job advertisements.
Australian job advertisements jumped a record 42% in June as large parts of the economy re-opened from coronavirus lockdowns – but job ads still remained lower from a year earlier, as you might expect. Monday’s figures from Australia and New Zealand Banking Group showed total job ads climbed to around 89,000, up from just 63,000 in May. Reports suggest that employers have taken about 250,000 Australians back on to their books since mid-April, representing about a third of the jobs lost in the initial four weeks of the COVID-19 crisis. The latest Australian Bureau of Statistics report, which draws from Australian Taxation Office payroll data, showed the number of payroll positions has lifted by 2.7% since the April low.
Turning to property markets, it’s a particularly good time to be a first-home buyer in Australia – provided of course you have a secure job and don’t live in Melbourne.
There are multiple support schemes from both federal and state governments – and interest rates are ultra low. The 1 July release of 10,000 new guarantees under the First Home Loan Deposit Scheme is expected to be well received for those looking to enter the market. The HIA says it is expecting a positive response to the new allocation, with many first home buyers hoping to take up the offer and move their home-buying plans along in a faster fashion. HIA executive Kristin Brookfield says: “The deposit gap remains the largest impediment for most people in accessing a home loan and starting their home ownership story. Recognising that many people have the capacity to meet regular loan repayments but are struggling to save the ‘extra’ needed to make a 15% deposit is the key to this scheme.”
This is the second intake of the First Home Loan Deposit Scheme – the first intake was on 1 January and was allocated very quickly – and is designed to give first-home buyers a leg-up in the property market by providing banks with a guarantee so that young buyers can get into their first home without having to pay mortgage insurance, which is hideously expensive. Nathan Dal Bon, chief executive of the National Housing Finance and Investment Corporation, says around 5,500 applicants for the federal government’s First Home Loan Deposit Scheme are already in their new homes.
FHBs can also access the Federal Government’s HomeBuilder grant of $25,000 if they opt for a new home and there are various state govt assistance schemes also available, including stamp duty exemptions. But, according a new survey published recently, prospective first-home buyers are “confused and overwhelmed” by the housing market and the number of grants and incentives available to them, which is stopping some from actually following through. The survey commissioned by home loan and mortgage brokers Aussie quizzed 1,024 Australians looking to get into the property market in the next five years. And it found that most were unclear or did not know about first-home buyer grants and schemes – 85% said they did not know what the First Home Loan Deposit Scheme was and had never heard of it. Around a third of those surveyed said they did not understand the grants offered by state governments across the country to help first-home buyers get onto the property ladder. Aussie chief customer officer David Smith says the results are surprising, adding that the coronavirus pandemic had increased confusion about the market, as had initiatives such as the First Home Loan Deposit Scheme.
All I can say is – this is not a bad problem to have. There has never been a time when there was so much help available to first-home buyers – and if people are too lazy or too uninformed to take advantage of it, then they deserve to miss out.
Meanwhile, inquiries for land from would-be home-owners have more than tripled since April following the announcement of the federal government’s HomeBuilder scheme, according to data from realestate.com.au. Developers are being flooded with enquiries on the back of the June 4 announcement of $25,000 grants for new builds, with the real estate portal reporting the number of people asking about land offers up by 63%. The record high for land enquiry is more than triple the levels seen in April, up 222%. REA director of economic research Cameron Kusher says that, despite early criticism of the HomeBuilder package, it is obviously proving very attractive to the active first-home buyers segment of the market and is likely to inspire many to bring forward their plans to buy.
Looking at vacancy rates, in most markets across the nation they remain low, despite the pandemic impact, although there are exceptions. Domain economist Trent Wiltshire says that while each capital city rental market has been affected differently by COVID-19, the national vacancy rate held steady in June, stabilising after a rise in April. Wiltshire says: “Some states have decided to open up borders, and economic activity is returning to somewhat normality; however, Victoria faces a second wave of coronavirus transmissions.” He says vacancy rates are broadly steady in Melbourne, Sydney and Brisbane, while Hobart, Perth and Darwin saw the biggest falls in vacancies. Sydney’s vacancy rate remained at 3.6% but remains 50 basis points higher than one year ago. Melbourne’s vacancy rate has risen for the fourth consecutive month, increasing 10 basis points to 3%. But vacancies are much lower than that in small capital cities like Brisbane, Adelaide, Canberra and Hobart – and also in many regional cities.
Media, of course, continues to emphasize the negatives in any set of figures – and here’s an example.
A recent newspaper article shouted that one in 10 off-the-plan apartment sales have fallen over during the past three months – because, apparently, lower valuations due to weaker demand and oversupply has prompted banks to reject final loan approvals, forcing buyers to give up millions of dollars in deposits. This negative slant on the situation came, of course, from the nation’s worst tabloid rag, the Australian Financial Review. It said that, out of 35,000 off-the-plan settlements between March and June, about 3,000 have collapsed due to problems with a lower valuation. There is, of course, another way of looking at it. Despite the negative impacts of Covid-19, 90% of apartment sales have settled in recent months – that means 32,000 of the 35,000 off-the-plan deals have proceeded to settlement as planned. And that, in the circumstances, is a pretty good outcome.
Another positive story is that the number of mortgages on suspended repayments through COVID-19 hardship measures is declining, with some homeowners opting to begin paying down their debt earlier. Major banks say that the number of customers asking to defer their mortgage repayments has cooled off in the past month, as economic conditions across the nation improve. The banking sector in March implemented six-month mortgage deferrals to assist borrowers who had been adversely affected by the shutdown. According to the Australian Banking Association, as at June 19, a total of 485,063 home loans had been deferred. ABA chief executive Anna Bligh says: “Encouragingly, banks are seeing that many deferred customers are choosing to resume making loan repayments.”
And finally, today SQM Research, which is one of the best sources of reliable information of residential real estate, published its weekly Prices Index. And it indicates that, nationally, house prices have risen slightly – 0.2% – in the past month, while apartment prices, nationally, have risen 1% in the past month.
Five of the eight capital cities have recorded increases in their house prices in the past month – Brisbane, Perth, Canberra, Darwin and Hobart.
The three cities to record decreases in house prices in the past month are Sydney, Melbourne and Adelaide. In Annual terms, seven of the eight capital cities have house prices higher than a year ago – the only exception is Darwin. Nationally, house prices are up 6.7% in annual terms and apartment prices are up 5.6%.
And, in the circumstances, that is remarkable. Residential real estate continues to defy the doomsday forecasts of the nation’s gaggle of chattering economists.