Insights of the housing market during COVID-19

Released
25/03/2021

Total household wealth (measured as net worth) increased 4.3% ($501.5b) during the December quarter 2020. This is the largest quarterly growth since December 2009, which was the peak of the recovery from the global financial crisis (GFC). Total household wealth and wealth per capita were at record levels of $12,033.5b and $467,709. Through the year growth was 7.0% ($790.2b), slightly below the long term average of 7.3%. 

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Source: Australian National Accounts: Finance and Wealth, December 2020, Table 35.

Residential assets (measured as residential land and dwellings[1]) were the largest contributor at 2.1 percentage points of the 4.3% quarterly growth in household wealth.  Similarly, residential assets were the largest contributor to the 7.0% through the year growth at 4.7 percentage points.

During the quarter, residential assets grew 3.5% ($246.5b), the largest rise since December quarter 2016, and reflects increased housing market activity over the quarter. Property prices contributed 3.1 percentage points to growth in residential assets. As at 31 December 2020, household residential assets were $7,375.7b.

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Source: Australian National Accounts: Finance and Wealth, December 2020, Table 35.

Increased housing market activity was driven by an expansive monetary policy and support through government policies such as Homebuilder and other state specific initiatives, as well as pent up demand (due to lower activity during the June quarter COVID-19 lockdown period). As auctions and open home inspections picked up in September quarter (with the easing of social distancing measures), greater demand than there was housing stock on the market saw property prices rebound.  

The Reserve Bank of Australia’s (RBA) monetary policies reduced the cost of funding for banks and encouraged lending to households and business. See: Government and Reserve Bank financial balance sheets during the COVID-19 pandemic.

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Owner occupier and investor housing loan categories are only available from authorised deposit taking institutions (ADIs) and registered financial corporations (RFCs) and add to approximately 94% of total housing loans. These categories of housing loans are not published in this publication.

Growth in household housing credit outstanding rose 3.1% through the year. The increase was mainly driven by owner-occupier loans, which grew 1.9% over the December quarter. This is the strongest movement in owner-occupier lending since December quarter 2016. Investor loans also contributed to the increase, rising 0.4%, recording the first quarter of positive growth since December 2018.

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Source: Australian National Accounts: Finance and Wealth, December 2020, Table 34,
Australian National Accounts: National Income, Expenditure and Product, December 2020, Table 20(a)

a. Gross Disposable Income does not include housing interest payments.

The housing debt to income ratio decreased from 139.2 to 139.0 over the quarter, as growth in gross disposable income (GDI) was greater than housing debt (1.2% and 1.0%). The ratio has fallen for the past four quarters, recording a 2.5% fall through the year which is the largest fall since 1990. The recent growth in GDI was driven by government income support packages implemented in response to the COVID-19 pandemic, including JobKeeper and the Coronavirus supplement.

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Source: Australian National Accounts: Finance and Wealth, December 2020, Tables 34 and 35.

The housing debt to liquid assets ratio reflects the ability of households to quickly extinguish debt using liquid assets (currency, deposits, debt securities and equity). The ratio fell 2.7% this quarter, as the growth in liquid assets (3.8%) was greater than the growth in housing debt (1.0%). Since September quarter 2011 the ratio has trended downwards, and at the end of December quarter 2020 was 79.7. Through the year to December 2020, the ratio fell 4.5%, which is the largest fall recorded in the history of the timeseries.

In December quarter 2020, the housing debt to residential assets ratio fell from 27.1 to 26.5, its lowest level since December quarter 2017. The drop was driven by growth in residential assets (3.5%) being greater than growth in housing debt (1.0%), and reflects the increase in property prices.

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Source: Australian National Accounts: National Income, Expenditure and Product, December 2020, Table 20(b)(c),
Reserve Bank of Australia, Statistical Table F1: Interest Rates and Yields – Money Market.

b. Housing interest excludes financial services component of interest included in gross domestic product (GDP)

c. Gross Disposable Income does not include housing interest payments.

The lower cash rate targets set by the RBA over the past year have translated into lower mortgage repayments for households, as banks passed interest rate cuts on to their borrowers. In particular, heightened refinancing activity was observed in June quarter 2020, where households were enticed to switch from variable to low, fixed interest rate loans.

The housing interest payable (measured as dwelling interest) to income ratio represents the proportion of household GDI that is required to meet interest payments on housing debt. After a period of volatility during the GFC, the ratio has displayed a gradual downward trend as interest rates have fallen. Over the past twelve months the ratio has fallen sharply as the RBA cut interest rates and GDI saw growth due to COVID-19 government income support packages. At the end of December quarter 2020 the ratio was 3.3, the lowest since March quarter 2000.

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Source: Lending Indicators, January 2021, Table 1.

Housing market activity has also been boosted by Commonwealth government policies, such as the HomeBuilder and First Home Buyer schemes, as well as state government initiatives (lowering stamp duty thresholds and assistance for new home constructions).  These policies in combination with the low interest rates has seen record rates of owner occupier new loan commitments over the second half of 2020.

Footnotes

  1. Residential land and dwellings do not include commercial and rural land owned by households