The offset savings accounts of many Australians increased substantially during the pandemic with new figures revealing totals jumped from $171 billion in December 2019 to $205 billion at the end of March 2021.

At an average interest rate of 3.5%, those accounts are saving Aussies more than $7 billion a year!

COVID lockdowns continued to dominate the headlines in the past week with most parts of Australia under stay-at-home orders (except Melbourne – thanks Alex!).

Interestingly, at the same time on the other side of the world, 25,000 people attended Wimbledon for the tennis and 65,000 people went to Wembley Stadium for the Euro Championship. 

Why? Because the vaccine has been widely rolled out to Britons. Already 85.5 per cent of Britons have had their first dose of the vaccine and 70 per cent are fully vaccinated. 

What’s more, from July 19, they will no longer be required to social distance or wear masks in public. 

We’re not at that stage in Australia yet. Only 30 per cent of Aussies have had their first dose of the vaccine and just 8 per cent are fully vaccinated.

However, it’s encouraging to see the rest of the world opening up again and we’re sure Australia is on the path to similar freedoms as the vaccine is rolled out over coming months.

In the property market, median house prices for June were released and it was another strong month.

Sydney led the charge, again, with 3 per cent growth for the month, followed by Canberra (2.7 per cent), Brisbane (2.2 per cent), Melbourne and Adelaide (both 1.8 per cent).

Sydney and Canberra finished the financial year 19 per cent and 20 per cent up respectively, while Brisbane and Adelaide were both up for the financial year by 15 per cent. Even Melbourne finished the financial year up 9 per cent, which is very impressive given it was locked down for most of the second half of 2020.

The Australian median house price finished the financial year up 14.8 per cent with 13.9 per cent of that growth occurring since 1 January (an annualised rate of 28 per cent!).

What’s driving it all?

Demand. There were 582,900 homes sold in the financial year, which is the highest annual sales volume since February 2004. That means roughly one in every 18 homes in Australia was sold in the past 12 months!

At the other end of the spectrum, the number of new listings isn’t keeping up. There were 126,320 new listings in the three months to June, compared with 167,450 sales. 

That’s 1.3 home sales for every new listing which is ultimately why the median house price in Australia increase by 14 per cent in the first half of the year.

Driving this demand is the affordability of housing due to record low interest rates.

In fact, household interest payments only account for 3.1 per cent of disposable income today compared with 8.5 per cent in 2008.

Australian home buyers accounted for $300 billion worth of home loans in the year to 31 May 2021, which is up more than a third on the same period the previous year.

Between 2015 and 2018 – when Sydney’ and Melbourne’s property markets boomed – we were averaging between $242 billion and $256 billion, meaning it’s still 20 per cent up on that period.

All of the borrowing is being driven by owner occupiers who accounted for the majority of loans.

It’s for this reason that we don’t think it’s likely we will see interest rates go up, or government intervention in lending standards.

Not that it is unheard of. In 2017 the government instigated a royal commission into banking which sought to tighten lending and make it harder for borrowers to access credit.

The difference between then and now is that investor loans sat at an average of nearly $100 billion between 2015 and 2017 (versus $70 billion today) and, importantly, investors made up 40 per cent of all loans in that period (versus 25 per cent today).

Now the market is being driven by owner occupiers and that’s what our banks and our government want. Owning a home is the biggest investment most Aussies make, and a strong housing market driven by owner occupiers is something the government would be welcoming when it comes to driving Australia’s post-COVID recovery.

The question is how long can it go on for?

Well, the RBA doesn’t intend on raising interest rates until 2024. It confirmed that again at its monthly meeting this week. 

With less than 20 per cent of Australians’ disposable income going toward home loan repayments today – which has traditionally at around 30 per cent – there would seem to be more room for prices to grow.

Even if we do see an interest rate increase, it’s only likely to occur if we start to see wage growth, which likely offsets any impact of a drop in rates when it comes to affordability.

In any event, it’s important to have a long-term view when investing in property.

Importantly, you can never go wrong with land. Even if house prices stabilise, there will be a push toward that as the solution to affordability.

Density drives up the value of land.

After all, they can’t make any more of it.

Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.

James and Alex 

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