If it bleeds it leads!

Three bits of recent hog wash.

Housing values

They are apparently going to hell in a hand basket.

Well, it’s a seesaw if you ask me.  With the ‘see’ beating the ‘saw’ every time.

Table 1 outlines recent price machinations for settled house transactions across Australia.

Big gains in median selling values achieved between a trough and peak (see) are always accompanied by relative minor falls in selling values during the downturn (saw) of the property cycle.

What isn’t discussed in all the current doom and gloom is just how resilient the Australian housing market is.

Monetary policy has tightened by 2.75% since May, lifting average variable mortgage rates from 3.45% to 6.20%.  In turn, average mortgage repayments have increased by a third, adding about $800 each month to a typical $500,000 home loan.

And yet, the median price of a house sold in October is down just 6% from the peak median settlement price in March this year.  Remember house sale prices rose by $320,000 or 42% since the start of the Covid pandemic to March this year.

Moreover, the median sales price of an Australian house has risen from $335,000 in March 2005 to about $1,022,000 today (October 2022).

Nevertheless, all we read about this the pending housing crash with some nincompoops even suggesting sale prices falling by over 20% during this downturn.

To quote a recent gasbag:

Higher interest rates have now caused banks to reduce their mortgage amounts by 22% from the levels available during the boom…this 22% loan availability reduction will be translated into an overall fall in house prices of a similar amount.

That means all those with original deposits of less than 20% now face the danger of negative equity.

And it gets even worse!

As a result, negative equity has now spread to about a fifth of people with a mortgage.

Negative equity

Well, what toss!

Yes, there is a strong relationship between housing finance movements and housing values.  Revisit my recent update on this topic here.

But that relationship isn’t an equal one.  Our extensive work here suggests that a 22% fall in available housing finance, should see about a 10% fall in Australian median house sales prices.  This will take six to twelve months to be felt across the market.

This potential 10% fall is in line with table 1 above and our longer-range forecast outlined earlier this year.  Revisit that post here.

Now let’s investigate the claim that over 20% of Aussie mortgage holders presently owe more than what their property is worth.

Some 3.6 million households have a mortgage in Australia, with 72% of these being owner residents and 28% investors.

The 20% claim means that just under 800,000 Australian households have negative equity in their home or investment property.  This translates to one in twelve Australian dwellings.

Interestingly there was some 800,000 new homes loans approved across Australia over the twelve months to the March 2022 market peak.  A coincidence?  One wonders?

An analysis of the sales data suggests that 38% of the homes sold across Australian over the past three years were bought by first home buyers (including investors) and 62% were purchased by changeover buyers or investors who hold another dwelling and/or principal place of residence.

A recent ABS survey shows that these recent buyers, overall, have a 34% equity in the home and/or investment property.  This ownership share increases to 44% for changeover buyers and drops to 22% for first home buyers.

Also, the major banks have just finished their financial reporting, with all of them claiming that a major chunk – it ranges from 10% to 25% depending on the bank in question – of their home loan customers are well advanced of their home loan commitments.  Many are said to be years ahead.

If I was to have a stab at it, I reckon, at most, that about 5% of Australian’s owe more on the mortgage than their home/investment is currently worth.  But this doesn’t mean much if they can keep up with their mortgage repayments.

The latest data indicates that three-quarters (74%) of mortgage holders (as of September this year) still pay less than 25% of the household income on their home loan.

And the final nail in the coffin is that Australia’s 30+ day mortgage arrears was down 7% during the June Quarter to just 0.82% of all home loans, which is at its lowest level since this Fitch Ratings Index began in early 2002.

Few are likely to go backwards

Much of the current conversation about housing values is about selling prices and not what most dwellings are actually worth.

I want to finish this post with a two charts which outline the median value of all dwellings across Australia, not just those that are either for sale or have been sold recently.

Chart 1 shows that the median value of all dwellings is currently around $921,000 and it has risen by almost 100% from $490,000 ten years ago.

Chart 2 shows that dwelling values across the whole market do fall – on occasions – on an annual basis, but that this rare and such declines are not sustained for an extended period of time.

This trend is also shown during the ‘saw’ periods reflecting sale price movements as outlined in table 1.

Overall, all dwelling values have slipped by just $19,000 or 2% so far this year.

End note

Talking up the market?


But some balance is needed if you ask me.

And whilst interest rates are likely to go higher, and many households are already under some pressure from increasing costs the calls for Armageddon are getting ludicrous.

True some mortgage holders who took out a fixed term loan starting with a two (as an annual percentage) are facing more pain than they initially bargained for, but thankfully their numbers are limited.

Yet if it bleeds it leads.

So, the negative press will continue and even hasten during 2023.

Best to ignore it if you can.


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