August Market Update.
The housing market continued its upward trend in August, recording a 0.8% rise in national house prices for the month. That brings house prices into “firmly entrenched” recovery territory with a 4.9% increase since prices hit their floor back in February, according to the latest data by CoreLogic.
The figures are good news for home owners who have clawed back some gains after significant falls last year. But Tim Lawless, head of research at CoreLogic says that prices are still being buoyed by low listing levels which are 19% below trend.
CoreLogic added a cautious note about some potential headwinds if excess stock comes onto the market. Stubbornly low consumer sentiment and interest rates likely to remain higher for longer and more pressure on mortgage holders with the threat of arrears into 2024.
Bartlett and Co. Property Principal Tim Bartlett says that bodes well for vendors who are ready to pull the sell trigger this spring. “Despite uncertainty around interest rates, this wait and see approach by some vendors is holding up the market. But of course, you can’t take advantage of these rising prices if you are sitting on the sidelines,” he said.
What’s made housing affordability hit 30 year lows?
While it is welcome news to vendors that house prices have started their recovery, it is cold comfort for those who are looking to get into the market.
According to the PropTrack Housing Affordability Index, the REA Group’s analytics division, housing affordability is now at its lowest level in 30 years, the result of a perfect storm of steep house prices, a sharp rise in interest rates and sluggish wages growth.
The average Australian household now takes 5 and a half years to save the 20 per cent deposit of the median priced home. The report’s author, Angus Moore says according to the averages, the typical income has had drastically reduced choice.
“Highlighting the alarming state of housing affordability at current interest rates, a household earning the median, or typical, income in Australia can now afford just 13% of homes sold across the country,” Mr Moore said.
Help to Buy. How does it work?
In August, Labor announced plans to resurrect its Help to Buy scheme some time in 2024.
The shared equity scheme typically means that buyers can get a foot into the market with a 2% deposit and the government will chip in 30 per cent on existing and 40 per cent on new homes. The scheme will be available for individuals earning less than$90,000 or couples on less than $120,000 per year with a $950,000 cap on prices in capital city and regional centres such as Wollongong.
The scheme is a free kick for new owners who will not be required to pay rent on the 30% government portion, but must pay all rates and insurances and hand back the capital gain on the governments portion. After 2 years, participants are able to buy back the government portion of 5% at a time.
Another bonus is that new owners will not have to pay mortgage lenders insurance and there is now less pressure on the bank of mum and dad. All eyes will be on state governments to pass legislation in early 2024.
Freeze and cap on rents? Careful what you wish for
While the PM is threatening a double dissolution if the Greens don’t play nice over his national housing plan, investors already reeling under falling house prices and rising interest rates are fending off talk of a rent freeze and cap.
There is little doubt that soaring rents are hurting Australia’s most vulnerable. But a freeze and a cap are likely to do more harm than good according to the Grattan Institute’s Brendan Coates who says that the move is likely to drive lower turnover and worsen the situation for those looking for a property in an already scarce rental market.
According to Coates, increasing rental assistance in the short term and housing supply in the long term are better alternatives.
Real Estate Institute of Australia President Hayden Groves also says that the talk is already having an impact on mum and dad investors.
“At a time when cost of living, inflation and interest rates are challenging for all, family investors are rightly frightened by talk of rent controls and rent freezes and we see that bearing out in the listings and sales data,” said Mr Groves.
“The biggest loser out of that is, of course, renters as fewer rental properties will be available.”
So far, the PM and the state’s premiers have ruled out the plan that was put forward by the Greens and 80 housing and community services groups.