Housing estate.

Australia’s Housing Market Adapts & Looking to the Future

The housing market in Australia is a mix of good and not-so-good. We face challenges unique to our times as the post-pandemic period continues to unfold. Government schemes are changing the housing market, and mortgage brokers are pivoting to serving customers and homebuyers. A plan is unfolding and adjusting to circumstances – the best is on its way.

Homebuyers need to be aware of market changes and the dynamics of the current shifts in the market. As government interventions continue there is reason to hope. Both the experts and brokers are facing challenges not seen in a lifetime.


What is the Government Doing?

The Australian Prudential Regulation Authority (APRA) is the nationally responsible “independent statutory authority” over banking and insurance institutions. APRA answers to the Australian Parliament.

In a 6 October 2021 media release, the APRA responded to rising home prices and substantially lower interest rates in its regulatory role. Seeing more significant pressure on household debt, as families and individuals experience little income growth, APRA recognizes risks of “future financial stability.” At the microeconomic level, households tend to reduce consumption due to economic stress from the greater society, and a decline in consumer consumption contributes to economic decline. The time has come to act.

The Authority concluded it was prudent to create a “minimum interest rate buffer.” With an increase in rates, it is expected that lenders will take a closer look at the “serviceability of home loan applications.”

Wayne Byres, Chair of the APRA said, “this is a targeted and judicious action designed to reinforce the stability of the financial system.” The Authority, according to Byres, “is focused on ensuring the financial system remains safe.” The banks need to assure clients can afford home loans. He sees a banking system as highly capitalised and holding good standards, but the risks of “heavily indebted borrowers” need to be minimized. One in five approved loans in the last quarter were many times above home buyers’ income, and in the larger economy, it can be projected that credit growth will continue without income increases.


A Mixed Perspective

Elizabeth Redman, a senior news producer for the internet news outlet Domain, interviewed several newsmakers. She is predicting that loan crackdowns are coming that possibly limit price housing increases. Housing prices are not likely to lower in 2022, but the value of the housing stock should increase modestly, economists warn.  She notes that in the last year, after “soaring growth,” housing values increased by 20 per cent, according to CoreLogic. In 2017 a two-digit per cent fall in prices occurred after a tightening of lending standards, but there is little suggestion housing prices will fall in the current market.


What Does the Government’s Action Mean for the Housing Market?

Matthew Hassan, a senior economist with Westpac, sees a headwind for heating the housing market. The APRA has stepped in to face the increasing risks. Still, prices should remain stable. By increasing interest rates, banks have a better rate buffer when qualifying borrowers. The average buyer will only be facing about a 5 per cent decline in borrowing power. Only a tiny percentage of home buyers attempt to utilise their maximum credit. On the other hand, investors do more often seek the total credit available to them. Investors are more likely to have banks applying the buffer rate, taking on a more significant debt burden. These factors point to a cooling of the market, but it does not mean a significant slowdown.

The good news is that the APRA actions are a relatively light touch. As there is strength in the market, banks being more prudent makes sense. This is not a time to borrow at the limit of one’s means.


The Housing Market Remains a Strong Workhorse

The housing market shows strength despite covid-19 mandates and stand-down workers waiting to get back to work. Across the country, double-digit price increases improve value for homeowners. Other sectors of the economy are enjoying more activity. New jobs have been created, for example, retail, and investor-driven construction increases. A balance needs to be realized. Regulators should focus on lenders to ensure the standers set are maintained.

The actions of the APRA were anticipated and are timely. By early 2021, loans were being made that buyers could only marginally maintain. Fixed-rate loans terms are expiring, and the rates are sure to rise. The current boom is dominated by homeowners who form a base and create stability in the market.


Melbourne suburb.


The Handwriting Was on the Wall

Michael Janda of the Australian Broadcasting Corporation, back in late September 2021, reported on increasing concern among regulators. The Council of Financial Regulators was concerned about rising home prices and growing debt driving the boom, and regulators were concerned about low-interest rates. The Reserve Bank allowed record-low interest rates, and the APRA allowed looser lending standards.

The actions of the APRA were predictable. The combination of looser loan standards and rising home values needed to be addressed. The tools of increasing interest rates have been used in the past. The pandemic has exaggerated in the minds of many the problems in the economy, and more so for the security of a home and personal finances.


The Pandemic Slows and the Promised Opening Up Promises Economic Recovery

In late October, Eliza Owen, real estate and construction analyst with CoreLogic, writes that easing covid-19 restrictions are lifting the spring selling season off to a strong start, with many properties preparing for sale.

New listings have surged 28.2 per cent, adding 45,000 total listings. The pandemic has shaped distinct preferences. Buyers are more likely to buy detached homes, and price hikes occur in coastal areas, larger cities and lifestyle markets.


The Plans for the Years End

The APRA plans on developing and releasing plans by Christmas detailing the full toolkit of options. Potential actions include setting debt-to-income limits on lending and lending caps. The APRA wants to avoid using the “cash rate” to control home price increases. The regulators expect a “modest slowing in price growth.” The APRA is looking closer at banks “risk appetites” and the use of “high debt-to-income ratios” in lending.


Banking in 2022

The Australian Banking Association (ABA) is getting ready for next year. The last two years were exceptionally challenging. Thankfully, the Australian people faced this most difficult time with a united effort. We have fared better than other countries. The association members were key players using their financial firepower to absorb impacts on the economy.


What Is the Economic Legacy of Covid-19?

The ABA is organizing a Banking 2022 conference. They will be at the head of the discussions of the global economy, national economic opportunities, and what is ahead for Australia and the world. The impacts are significant, and answers are complex, but the conference participants plan to take on the challenge with determination.

The professionals in the mortgage industry are there for homeowners and developers. The new and changing housing sector requires borrowers to be generally aware, and with the broker’s assistance, the best decisions are made.

Like sailors weathering the storm, we Australians mustered the will to fair well in historically challenging times. Covid-19 has created many impacts on the economy, and leaders in the economic sector have risen to the occasion. As the year fades into memory, we should fair well in the housing sector.

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