Market entry reaches highest levels since 2009

Australia’s state average home loan has also increased by 6.7 per cent between September quarter 2019 and September quarter 2020, reflective of this year’s cash rate cuts and banks offering extremely low fixed interest rates.

NSW experienced the highest growth at 10.3 per cent, followed by the ACT at 8.0 per cent. Similarly, price growth in both states have grown significantly in the past 12 months, despite COVID-19.

On the other hand, Tasmania emerged as the only state with declining state average home loan growth, declining by -1.9 per cent.

According to PRD chief economist Dr Diaswati Mardiasmo: “An increase in the state average home loan suggests that we are now more comfortable with higher lending values and is potentially approved to ensure buyers can keep up with increasing property prices. This a catch-22 situation; on one hand, it allows buyers to enter the market by lowering the gap between a loan amount and the property price.

“On the other hand, it also creates higher debt for buyers and may take longer to service. The question is whether capital growth can offset the value of the debt, to ensure that property is servicing buyers’ future financial needs.”

Home loan affordability

Meanwhile, home loan affordability, defined as the ratio of median family income to average loan repayments, has declined by -0.3 per cent Australia-wide, PRD found. This is in line with the increase in average home loans, which would require higher average loan repayments.

“The decline in home loan affordability may be a surprise to many, as there is an expectation of a slower property market due to COVID-19. However, at the same time, the line of credit has been increased, with evidence showing that, as an overall, property prices continued to grow after COVID-19’s peak in April/May 2020,” Dr Mardiasmo said.

Home loan affordability improved the most for Western Australia by 3.7 per cent due to its previous softer market pre-COVID-19 and higher state average home loan for September quarter 2020. WA also recorded the highest growth in home loan affordability while also recording the lowest growth in state average home loan.

First home buyers in Victoria, Queensland, South Australia and Northern Territory can now also capitalise on higher home loan affordability as the states see increases of 0.7 per cent, 0.3 per cent, 1.4 per cent and 2.0 per cent, respectively.

First home buyers

According to Dr Mardiasmo, first home buyers are the real winners in 2020, with an increase of 36.1 per cent in the number of first home buyer loans approved Australia-wide between September quarter 2019 and September quarter 2020.

This growth was supported by the “trifecta of support system” that currently exists: federal government policy such as HomeBuilder and the First Home Loan Deposit Scheme, record-low cash rates and a price growth softening in several markets due to COVID-19.

Queensland takes out the number one spot for the highest growth in first home buyers, increasing by 53.4 per cent between September quarter 2019 and September quarter 2020. This has been spurred by Queensland’s early timeline in easing restrictions and reopening of the economy.

Further, this also suggests that there is a high level of pent-up demand in Queensland, indicating the need for more greenfield housing in the future, Dr Mardiasmo noted.

For the first time in many years, first home buyer growth in NSW (29.5 per cent) and Victoria (26.3 per cent) are lower than in other states, accounting for Sydney and Melbourne’s restrictions and tougher lockdowns.

Still, history shows that first home buyer growth in NSW and Victoria are usually between 20 per cent to 30 per cent, which suggests that despite COVID-19 conditions, there is still a strong first home buyer market in both states.

“Looking at state average home loans, home loan affordability and first home buyer loan approvals, it is evident that the property market continues to grow despite COVID-19. Demand has bounced back in line with easing of restrictions, further fueled by government policies and the Reserve Bank of Australia’s cash rate cuts.”

“The outlook for 2021 is positive, as the promise of a COVID-19 vaccine brings hope to us all, translating to higher consumer confidence.

“There is a tremor of uncertainty due to many government initiatives and grants finishing in the first quarter of 2021; however, in part this is balanced with many economies – both within Australia and around the world – coming out of lockdown,” Dr Mardiasmo concluded.

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