September 7, 2020 by Dymphna

Is Oz property really a “cockroach”

People are surprised that housing hasn’t crashed. They just don’t get it.

After all that’s happened over the past 40 years or so, I’m still surprised that people are surprised at how strong the Australian property market is.

They’re shocked. I’m shocked. We’re all shocked.

Remember, property prices fell a grand total of 5% through the GFC. But still, people still expect a virus to knock 40% off prices in a matter of months.

So far, prices at the national level have fallen just 2%, and in a lot of markets – especially regional markets, the trend is still up.

Some people can’t get their head-around it.

Like Jason Murphy, writing for Crikey, who reckons that the Aussie property market is “a cockroach that can withstanding anything.”

Do you want to see a graph that made my jaw hit the floor?

The Commonwealth Bank recently sent out a compendium of data on its lending activity, and it contained this startling graphic. Apparently amid the mayhem of death and economic destruction wrought by 2020, housing lending is continuing apace.

In fact, as the next graph shows, despite a dip in April and May, new lending is still almost 20% higher than last year.

“The flow of new lending is now a little above where it was pre-COVID. In annual terms lending is growing at a strong pace,” the CBA said.

The Australian housing market is astonishing. Like a cockroach, it appears capable of withstanding most anything. And goodness knows the events of 2020 have been the equivalent of a can of Mortein and a vigorous stamping.

Australia’s love for home ownership apparently continues to burn fiercely.

As the next graph shows, house price movements remain quite negative in Victoria. But in NSW and Queensland they appear to be clawing their way back up to positive territory. The effect of the lockdowns is wearing off…

Whether you seek to assign credit or blame for this miraculous stability in the housing market, you must turn to one place. The Reserve Bank of Australia. Its interest rate cuts have been the balm the housing market wanted. By slashing the official interest rate to just 0.25%, fixed mortgage rates have fallen to as low as 2.3%…

These low rates mean borrowers can service far higher loans. And so they are borrowing more. Average loan size is also up on last year, according to CBA data.

This is mostly right.

I would note that the lending data is just on CBA’s book, so there’s a compositional affect here. The numbers for the banking sectors overall – when you include other banks – aren’t quite so bullish.

But still, the general point is right. The Aussie housing market is holding it together, on the back of record low interest rates.

But it’s not just that.

Remember, financial markets are a beauty contest. It’s not just the absolute attractiveness of property that matters. It’s its attractiveness relative to other options.

And the most important judges here are the banks, and what asset markets they’re willing to lend into.

Property has a track-record of stability. The saying is “as safe as houses”, not “as safe as commodity market derivatives.”

And in times of crisis, a reputation for stability becomes a self-fulfilling prophecy.

So beautiful.