Why are house prices rising at a time when unemployment is still high and wages are not growing?
Just to make things clear…
This is not the same question as: “Why have house prices been so resilient during the coronavirus induced recession?”
House prices are never as volatile as share prices on the stock market but this time around government intervention to support jobs and the economy and the provision of mortgage deferrals from the banks for homeowners and investors meant that very few property owners fell into mortgage stress and Australia has had minimal if any distressed sales.
But the question I would like to address today is a different one – why are house prices still increasing in some locations?
That’s what I’m going to ask Dr. Andrew Wilson, Chief Economist of My Housing Market and of course, I’m looking forward to seeing his data which will show us what’s been happening in the property markets over the last week.
Last week we spoke about how many of the housing bears changed the forecasts – now another major bank, the NAB has done an about-face.
They now join Westpac, CBA, Capital Economics, UBS, ANZ and HSBC who over the last few weeks have sheepishly been forced to do a long overdue 180-degree turn, conceding that our property markets have remained resilient and they all now expect property prices to rise in 2021 and 2022.
The NAB that they have changed their view on property prices for the next year and expect rises of around 5% over 2021 and 6% over 2022.
The economics communities have not exactly covered themselves in glory when it comes to predicting the future of Australia’s biggest asset class.
Why are property prices still rising?
Swelling disposable incomes at a time of falling interest rates and therefore lower property holding costs have left borrowers better off than they would have been a year ago.
Just like the health consequences of coronavirus has not affected us all equally with some groups in the community being more vulnerable than others, similarly, the Covid 19 economic impact and the resultant recession has not affected us all equally.
Unfortunately, unemployment has risen, but the job losses have disproportionately being born by lower income earners, casual workers and those who have lost their second job.
Many of these people are not typically homeowners – they are more likely to be tenants.
This meant our rental markets have suffered this year, with vacancies particularly high in the inner-city apartment markets.
On the other hand, around 90% of Australians still have a job and many of them are better off financially with more disposable income than they’ve had for a long time, even if their wages haven’t gone up.
And in the last month or so most workers will have seen their pay packet go up because of newly introduced tax cuts
According to the latest credit and charge card data released by the Reserve Bank Australians have wiped a staggering $7.31 billion off personal credit card debt this year.
And at the same time, Australians are drowning in cash, having stashed more of their cash in the banks.
Household deposits with financial institutions it up almost 12% over the year as Aussies have rapidly amassed close to $100billion in total savings as a buffer against the COVID-19 recession.
In September alone $16.5billion flowed into bank deposit accounts and since the pandemic household deposits are up a cumulative $99.5bn (or 10.1% on Feb 2020 levels).
Australia’s labour market improves more quickly than expected?
The labour market has improved sharply over recent months with employment outside of Victoria almost back to pre-pandemic levels.
Excluding Victoria, employment is now just 0.9% below from pre-COVID March levels (or 82k lower), while the participation rate is now above pre-pandemic levels and is the equal highest since August 2019 at 66.1%.
Hours worked, admittedly, are still recording slightly weaker outcomes.
The labour market improvement has occurred even as government support is being tapered with JobSeeker (unemployment) numbers falling 8.0% since May (or 117k people) with the steepest declines being seen in WA (-15.2%), QLD (-12.7%), NSW (‑11.8%) and the ACT.
The only state to have seen an increase in JobSeeker numbers since May is Victoria (+4.3%) which was driven by Victoria’s second lockdown.
This week’s economic data provided by Dr. Andrew Wilson
Watch our video as Dr. Andrew Wilson gives his commentary on the following data:
Recovering Sharemarket – Our strong share market signals improved investor sentiment which should only get better as our economy recovers.
The Australian Dollar – has been climbing recently, which is the opposite effect of what the Reserve Bank was hoping when it lowered interest rates, but this is likely a reflection of the low US dollar
Latest employment figures – while unemployment rose marginally to 7% in October, this is a much better figure than most commentators expected.
In this week’s video as Dr. Andrew Wilson unpacks the employment figures and explains the rising participation rate (more Australians looking for a job or working) is great news.
600,000 jobs have been created in the workforce over the last five months and close to 600,000 people have returned to the workforce
The latest property data provided by Dr. Andrew Wilson of My Housing Market
Watch our video as Dr. Andrew Wilson gives his commentary on the following data:
Auction clearance rates remained firm in Sydney last weekend.
At these levels, when close to 80% of properties put to auction sell under the hammer, price growth tends to follow.
There are now firm signs that we’ve passed the bottom of the Sydney property market.
And Sydney property sales remain strong, almost back to pre Covid levels reflecting pent up demand.
With life in Melbourne getting back to normal, more properties are being listed for sale and auctions have returned to Melbourne, even though in low but increasing numbers, and buyers are active in the market.
With more Melbourne properties being listed for sale by auction, it’s likely that one of Melbourne’s favourite weekend pastimes, on-site auctions, will return with a vengeance.
Melbourne property sales have continued to be strong, reflecting pent up demand.
This situation is likely to continue as Melburnians get back to a more normal life and their confidence increases
The Brisbane property market is performing very strongly with the number of sales being higher than pre the Coronavirus pandemic.
Newly listed homes for sale:
With consumer confidence picking up, vendors are more comfortable and many more homes have come on the market for sale over the last week, particularly in Victoria.
But now with Christmas coming on, fewer properties are being put on the market as some vendors wait till after the break to sell their properties
Watch our video as Dr. Andrew Wilson gives his commentary on the latest statistics.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re confused about the mixed messages in the media you are not alone.
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