Kathryn Lee - 16 Nov, 2020

Australian house prices outperform wage growth

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Homeownership could be further out of reach for those yet to enter the market, according to house price data from Domain, which has revealed Australian house prices experienced stronger growth than wages last financial year.

The Domain data showed that in every capital city but two, house prices outperformed wage growth, despite the pressure COVID-19 placed on dwelling prices in the final months of the financial year.

Although Perth and Darwin both experienced a lull in house price growth, down by -1.4% and -0.1% respectably, each other capital city saw gains.

In the year ending June 2020, Sydney saw house prices rise by 10.5%; Melbourne by 6.9%; Brisbane by 2.4%; Adelaide by 3.0%; Hobart by 10.0% and Canberra by 9.3%.

Comparatively, figures from the Australian Bureau of Statistics (ABS) show in original terms, the annual Wage Price Index (WPI) grew 1.7% between the June 2020 quarter and the corresponding quarter of the previous year, the result lower than the house price growth experienced in most capitals.

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State-by-state, South Australia and Tasmania experienced the highest wage growth, the WPI increasing by 2.4% for both jurisdictions. Conversely, Western Australia experienced the lowest WPI where wages increased 1.6% on the corresponding quarter.

New South Wales saw wages rise slightly higher than the national figure at 1.8% while Victoria and Queensland were on par, both recording a 1.7% change.

The Northern Territory saw a 2.3% growth in wages while the Australian Capital Territory saw a 2.0% change in the WPI between the quarters.

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Will wages increase in the future?

Wage growth has experienced the lowest percentage change recorded since the ABS first began publishing in 1997, and BIS Oxford Economics chief economist Sarah Hunter doesn’t believe it will change anytime soon.

“Wages growth is likely to remain very weak given the collapse in employment and depressed economic environment,” she told The Sydney Morning Herald.

“And with many state governments announcing plans for wage freezes in the face of budget pressures and the pace of inflation falling back sharply (which will feed through to wage agreements), momentum in public sector wages is also likely to soften in the near term.”

The public sector has experienced a softer blow to growth, compared to the private sector. While the private sector saw a 1.7% change between the June quarter 2020 and the same quarter last year, the public sector saw wages rise 2.1% higher.

The bulk of the private sector hurt was seen during the June 2020 quarter, where growth eased to 0.1%.

“The fall in private sector wages is mainly due to a number of large wage reductions across senior executive and higher paid jobs,” said the head of price statistics at the ABS, Andrew Tomadini.

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Confidence in the housing market grows

While wages appear relatively stagnant, the housing market could be on its way up, according to a new consumer sentiment report from Westpac.

The Westpac-Melbourne Institute Index of Consumer Sentiment report for October revealed consumer sentiment surged 11.9% in October, the positive result believed to be off the back of the recent Budget announcement.

The survey also revealed a jump in the ‘House Price Expectations Index’, which soared 31.5% to 117.3, the report noting it was edging closer to pre-pandemic levels.

“The national Index is now ‘only’ 17% below its pre-pandemic level and back around the level seen in July last year,” the report said.

“There is clear optimism in smaller states – where housing has underperformed the major eastern states for several years – although the apparent resilience of the Victorian market is impressive.”

The report also noted growing confidence in the housing market, with the ‘time to buy a dwelling’ measure rising by 10.6% to its highest level since September 2019.

“Confidence in the housing market has boomed,” noted the report.

Despite slow wage growth revealed during the June quarter, the report found households were positive about their finances, believed to be due to Budget announcement.

Unlike usual Budget responses, the report found most respondents thought the Budget would ‘improve their finances’.

The ‘finances vs a year ago’ sub-index also increased 6.2% to the highest level since February 2016 and the ‘finances, next 12 months’ sub-index increased by 9.4% to the highest level since September 2013.

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Mortgage repayment holidays almost over

For those taking a break from mortgage repayments, the ‘holiday’ is almost over, and for others, it’s just finished – raising the question of what the impact could be on the housing market.

In the past weeks, many home loan customers have reached the end of their 6-month deferral period and have once again begun home loan repayments while others have been granted 4-month extensions.

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According to Australian Banking Association CEO Anna Bligh, almost half of deferred loans have now resumed repayments.

“At the very height of COVID we saw more than 500,000 Australians defer their mortgage repayments and another 200,000 small businesses do the same. That’s a lot of people. We’re very pleased to see we’ve now got about 45% of those loans back into repayments.”

Introduced by lenders in mid-March, the mortgage holiday program was started to help give home loan customers impacted by COVID-19 a short reprieve from repayments. Under the offer, customers were given six-month loan deferrals where they would not have to make any home loan contributions but would still accrue interest.

Now, as deferral periods come to an end, the market remains uncertain on how many investors may be forced to sell at a loss, according to CoreLogic.

In its latest ‘Pain and Gain’ report, which provides an overview of the proportion of properties that are selling for a loss or gain, CoreLogic suggested the market could be about to experience a soar in property owners forced to sell for a loss.

“The reduction in the volume of loss-making sales reflects a reluctance to sell when economic conditions are weak,” the report states.

“This reluctance may have been facilitated by mortgage repayment deferral policies through the pandemic, where those who are currently unable to service their mortgage may not have had to sell through the June quarter.

“However, since June, there have been instances of lenders signalling that distressed borrowers, particularly investors, should look to sell before the end of repayment deferrals.

“This could see an increase in loss-making sales over the following two quarters, particularly in more high-risk, investor concentrated markets.”

Words by Kathryn Lee


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