Migration Lift Will Increase Rents
Plans to increase migration into Australia could cause rents to increase further.
CoreLogic Head of Research Tim Lawless says the market is already experiencing dramatic rent increases as a result of a national vacancy rate of just 1%.
With the Federal Government indicating it wants to fill labour shortages by increasing migration, Lawless says this will put further pressure on the rental market.
“Migrants traditionally move straight to the cities and they move first to the rental market,” he says. “It’s the factor still missing in the residential sector even with the rebound in rents.”
He says the rental market nationally was subdued for almost a decade but that has now dramatically changed.
“Now the wheel has turned, we are seeing rental yields climbing very quickly. Falling house prices and rising rents are an unusual combination – in cities such as Sydney rental yields had dropped near 2%, we are now seeing them climb towards 3% and they could get to 4%.”.
Loan Stress Claims ‘Materially Overplayed’
Speculation that rising interest rates will force a number of borrowers to default on their mortgages is “being materially overplayed”, according to Citi economists.
Analysts Brendan Sproules and Akshat Agrawal say above-median household incomes are giving borrowers better financial flexibility to meet repayments, despite the RBA increasing the official cash rate to 1.35%.
S&P Global rating analyst Erin Kitson says mortgage arrears are at historically low levels and she doesn’t expect a significant increase in defaults, “given a strong labour market and the buffers built into serviceability assessments”.
Kitson says borrowers built up their savings during the pandemic as well as their repayment buffers and they will use that to help absorb higher mortgage repayments.
“While savings buffers have been declining from their pandemic highs as the economy has reopened, they remain above the long-term average of 5%,” she says.
Sproules and Agrawal say while there is no doubt Australia property is expensive and mortgages large, most borrowers can still meet repayments.
Home Sellers Warm To Winter Market
The weather may be cold, but the property market remains hot, with June recording the busiest start to the winter market in more than a decade.
PropTrack’s monthly Listings Report for June shows the number of new property listings are up by 8.5% compared with the same time last year.
PropTrack economist Angus Moore says interest rate rises and cost of living pressures have done little to dampen the market.
“There has been a brisk pace of new listings, with more new listings nationally across the first half of the year than during any year since 2015,” Moore says.
He says traditionally buying and selling activity slows in winter, but this year it has remained robust in many markets.
Sydney new listings are 1.3% higher than the same time last year and Melbourne is up 0.5%, while Canberra listings are up a massive 32%.
New listings on realestate.com.au throughout Australia are 8.5 %, making it the busiest June since 2011.
Rental Growth At Fastest Pace In 7yrs
Australia’s rental crisis is expected to worsen, with rents continuing to rise. PropTrack data suggests median rents are up 7% compared with the June 2021 Quarter.
That is the fastest pace of growth the market has experienced for seven years, with combined capital city house rents now averaging $500 per week and units $450. Rents in regional areas have hit $455 for houses and $395 for units.
PropTrack chief economist Cameron Kusher warns Australia is still at the start of the rental crisis.
“With overseas and interstate migration returning with borders now open, it seems likely that rental conditions will tighten further over the coming months,” he says.
Kusher says the total supply of rental properties is down 18% on a year ago.
Domain’s latest rent report shows both house and unit rents over the combined capitals have recorded their longest continuous stretch of rental price growth, with house rents rising for the fifth consecutive quarter and unit rents for the fourth.
Home Building 80% Above Pre-Covid Levels
Material cost blow-outs and a shortage of tradies hasn’t stemmed the demand for new homes, with the latest figures showing construction is still above pre-Covid levels even though building fell by 11% in the first quarter of 2022.
HIA Economist Tom Devitt says the recent slowing in commencements is not due to slowing demand.
“Home building activity in the first quarter of 2022 was held back by staff shortages associated with the Omicron outbreak and the higher than usual uptake of holiday leave,” he says.
Devitt says much of the demand is still a result of builders working through the HomeBuilder grant pipeline.
“Despite the rise in completions and decline in commencement of new homes, the volume of detached work under construction is almost 80% above its pre-pandemic levels,” he says.
Construction of units is also doing well, up 1.8% in the March Quarter to be 30% higher compared with the previous year.
Quote Of The Week
“With overseas and interstate migration returning with borders now open, it seems likely that rental conditions will tighten further over the coming months.”
PropTrack chief economist Cameron Kusher
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