In this certain to be short-lived series, we reached out to property data firm CoreLogic’s Evil Queen of Numbers, Eliza Owen B.A.

Cunning. Bookish. Knows property.

More negatively geared than Lance Armstrong riding the Tour de France backwards.

As merciless with a long-term trend as she is unafraid to pick up and carry a concealed decimal point until it’s already bumping up against the inner thigh of your delinquent mortgage.

 

Sometime, earlier this week…

Australian property’s hottest property – Eliza Owen – emerged from deep under CoreLogic HQ’s secret data catacombs, winced briefly at her nemesis The Sun and declared that on the last day of August, the combined value of Australian housing had rebounded all the way back to $10 trillion.

The combined value of residential property in this unknowable land hasn’t been worth that much since the peak of the pandemic driven boom, back in horrible, horrible June 2022.

Accepting a glass of water, a lit French cigarette and a blanket and surrounded by trained property scribes  – Eliza announced that the surge in values was the product of a combo of higher values, (Australia’s median home price hit $732,886 at August end), and the stock of available housing out there also increasing to around 11 million properties.

Beginning to shiver, she noted the national recovery in home values began back in March this year, with values rising on up happily like there was no RBA, to hit 4.9% through to the end of August.

“This recovery has wiped out around half of the preceding downturn between April 2022 and February 2023, when national home values fell -9.1% peak to trough,” she said, through clenched teeth as the CoreLogic medical team pushed their way into the quarantine bay and began to apply fluids via one of the four surgically implanted intravenous gauges on the back of Eliza’s neck – an investment CoreLogic’s director Tim Lawless once called “bang on”.

According to the latest CoreLogic numbers – Aussie home values are now just -4.6% from their stupendous record peak of April 2022.

But, and this is only my amateur opinion… it don’t make no damn sense.

Clearly, the recovery trend in values comes in the face of a genuine Aussie cost of living crisis, fair-dinkum low consumer sentiment and  the fastest rate hiking cycle on record which saw the bludgers at the RBA yank that chain 12 times in a row and we still don’t know if the bloody thing’s flushed!

Stockhead:

It begs the question, Eliza, how is this even possible?

Eliza:

(Pulls intravenous lines triumphantly from body, presses intercom) Have Lawless bring me my slippers. Ah. It’s an interesting question and there are a few factors that may explain why housing values have continued to rise, despite seemingly unfavourable growth conditions.

So write this down:

 

1. Net overseas migration

Demand for housing is being pushed higher by a combination of returning overseas arrivals, and a drop off in overseas departures.

Last year, departures from Australia were down about -25% on the pre-COVID average, while overseas arrivals ticked slightly higher on levels seen in 2019. Combined with a persistently low average number of people per dwelling across the capital cities, this is pushing the need for housing higher, and may be contributing to more competitiveness for properties on the market, especially considering rental vacancy rates remain around record lows.

2. Use of savings, profit and equity

There may be some draw-down in savings, equity or profits from previous home ownership that is being used towards property purchases, as opposed to more borrowing.

This would also help to explain why home values have continued to rise in the past few months, as ABS reported a fall in the value and volume of lending through June and July. However, it is uncertain how long households can draw on savings to support purchases.

ABS national accounts data shows the household saving ratio, which measures the ratio of net saving to net disposable income, has declined to 3.7% amid high inflation and debt costs. This is down from COVID-record highs of 23.6%.

3. Constrained supply

Total listings volumes remain fairly low, even as new listings have started to increase in the lead up to the spring selling season. In the four weeks ending September 3rd, total listings across Australia were sitting at around 136,000, which is -23.4% lower than the previous five-year average.

Stockhead:

Can the recovery continue?

Eliza:

Although housing values have been consistently rising over the past six months, the housing market outlook remains highly uncertain.

While there is a growing expectation that the RBA board is done hiking the cash rate, borrowing remains constrained by a relatively high serviceability buffer.

APRA data to June showed the weighted average home loan assessment rate was just below 9%, and ABS housing lending data shows mortgage lending has fallen for three of the past four months.

Economic performance is also set to unwind, and while this is good news for the inflation and cash rate trajectory, a rise in unemployment may create a higher degree of risk for mortgage serviceability.

CoreLogic is expecting some heat could come out of the recent recovery trend toward the end of this year, while a more robust recovery in housing values will be limited until credit conditions loosen.

Stockhead:

Eliza how come the property market’s not falling into the street, bleeding delinquincies out the eyeballs – like much of the inexplicably good Dustin Hoffman blockbuster, Outbreak, also starring Cuba Gooding Jr, Kevin Spacey, Rene Russo with Morgan Freeman and Donald Sutherland as the bad guy?

Eliza:

Oh. I haven’t seen that one. (hisses, sharp intakes of breath)

Firstly… you spelled delinquencies wrong.

Stockhead:

Really? (icily) Thank you so much. I’ll fix that.

Eliza:

(Ahem) Well, the sharp rise in mortgage rates since May last year will definitely have mortgaged households feeling the pinch – particularly for those that bought when interest rates were low, property prices were at a record high, and serviceability assessment rates were sitting at around 5-6%. Average interest rates for existing borrowers suggest they would be right at the top of that assessment limit by now.

However there’s a few reasons we’ve not entered ‘bricks and slaughter’ territory.

In fact, APRA data to the June quarter showed only 1.3% of outstanding housing credit was in arrears, which is lower than pre-pandemic levels.

New listings added to property market rose around 16% through winter, which is weird, normally listings would trend around 5% lower through the season. But might not be forced sales… it could simply be that selling conditions are much better now than they were when interest rates first started to rise last year.

Total listings are still very low, about 17.5% lower than the historic 5-year average across the combined capitals, and combined with a strong net overseas migration position, dwelling supply is just not meeting demand, so that’s pushing prices higher even as interest rates sit relatively high.

The housing market has also likely avoided big sell-offs because even though mortgage rates are high, incomes and savings were also higher off the back of the pandemic. Not everyone will have borrowed to their maximum capacity, and a fair chunk of households had big buffers on their mortgages.

That buffer of savings and offsets is likely being eroded a bit now, and that is where there is some risk for the market, going forward.

Stockhead:

I knew you were going to end on “going forward”.

Eliza:

I know where you live. (louder) I know where you all live!

Stockhead:

(Dial tone…)

Eliza:

(A hopeful Tim Lawless taps on window holding up rose Versace slippers. He gives the thumbs up)

Eliza:

(Disgustedly) Not those ones, Tim!

 

For Eliza’s full-on dissection of her latest research, check out this. 

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