RBA Launches Bold 3-year Support Package for Australia’s Housing Market

  • RBA EXPANDS TERM LENDING FACILITY – 0.25% RATES FOR THREE MORE YEARS
  • SYDNEY LEADS THE NATION WITH +9.8% ANNUAL RETURN AND +12.9% TOTAL RETURN
  • SYDNEY MEDIAN DWELLING VALUE DIPS -0.5% IN AUGUST TO $860,182
  • SEPTEMBER 5 CLEARANCE RATE OF 62%

           (CoreLogic and REIA figures. RBA Charts)

August was a mixed month for Australia’s national housing market but Sydney real estate once again stood strong. Despite a steep drop in GDP, Sydney’s median dwelling value barely budged, dipping only 0.5% to $860,182 and retaining the bulk of its outsized 2019-20 annual and total returns. The September 5 preliminary clearance rate of 62% was consistent with the healthy 62%, 61%, 71% and 66% rates from the four previous weeks. 

Given the current economic backdrop, these results are very encouraging for this year’s Spring selling season and beyond. Sydney’s real estate market is reflecting a broader trend from international markets where housing values are appreciating strongly due to pent-up demand and record low interest rates. The US is up 5.02% through June, while European gains are approaching 10% in Germany and 1.2% in London. Sydney has long had a positive correlation with international markets. With a strongly  appreciating Aussie dollar and renewed immigration in 2021, Sydney real estate values could well surprise to the upside in the coming year.

RBA to Australia’s Housing Market – We’ve Got Your Back!

On September 1 2020, Reserve Bank Governor Philip Lowe announced major changes to the Term Funding Facility introduced in March to help Australia’s banks and borrowers. In short, the RBA is making more credit available, at lower rates, for longer. The RBA is telling Australia’s major banks that they have access to $AUD 200 billion directly from the RBA at 0.25% for three years at minimum.

This is major news for Australia’s housing market. Improved credit conditions will encourage banks and qualified borrowers to re-enter the real estate market. It will also ease the pressure on banks to foreclose on borrowers who find themselves in mortgage stress. 0.25% is a nominal rate that equates to easy credit for the banks, guaranteeing them healthy lending margins of over 2% and “providing (banks) with continued access to low-cost funding.”

Governor Lowe states, “…the downturn is not as severe as earlier expected and a recovery is now under way in most of Australia. The economy is being supported by the substantial, coordinated and unprecedented policy easing over the last six months.” This support extends to the housing market.

Australian consumers have finally slowed their consumption rates and increased their savings, despite getting virtually no interest on their deposits. At some point these savings will be redeployed into ‘big-ticket items’ including housing.

Another safety net for Sydney’s real estate market is that residential building approvals have been dropping for three years already. Any upswing in demand will not be matched by supply. A similar setup occurred in 2008-2009. A few years later the market went on a tear and building approvals flooded in to capitalize on higher prices. For long-term investors, this is a sweet spot of the real-estate cycle and worth noting for your valued clients. Investors hesitating to re-enter the real estate market may soon be playing catch-up as easy credit, low interest rates and renewed demand all hit at the same time.