The housing market could witness its fastest recovery on record if the current price growth continues over the next few months, and an analysis by CoreLogic said this likely upswing will ultimately be led by owner-occupiers.
Dwelling prices in Australia have already increased by 6.7% since June 2019, when the national values bottomed out at 8.4% below their peak. This recovery is nothing short of "remarkable", said CoreLogic head of residential research Eliza Owen.
Owen said Australia is likely to witness its full nominal recovery by April if the price growth remains at its 0.9% monthly pace. This return could mark a 10-month recovery period, lower than the average recovery time of 11.7 months.
"This is remarkable when considering the relatively long time it took for the market to bottom out. Most recovery periods match the length of time it takes to go from peak to trough. However, in 2020, the market recovery could be half the length of the downswing," she said.
Also read: Growth "30 years ahead" of prediction
The table below shows the duration of downturns and upturns of Australia's housing market from 1989 to 2017. The longest time it took for the market to recover was during the 2010 downturn — after 19 months of reaching the trough, it took the market around 20 months to fully recover.
Duration of Downswings and Recovery |
|||||||
|
|
1989-91 |
1994-95 |
2004-05 |
2008-09 |
2010-13 |
2015-16 |
2017-19 |
|
Months to trough |
16 |
10 |
5 |
11 |
19 |
4 |
20 |
|
Months to recovery |
14 |
16 |
7 |
9 |
20 |
4 |
10 |
|
Ratio of recovery period to decline |
0.88 |
1.6 |
1.4 |
0.82 |
10.5 |
1.0 |
0.5 |
|
Source: CoreLogic |
|||||||
Owen said the recovery would likely be shaped by owner-occupiers, who, according to the finance data from the Australian Bureau of Statistics, comprise 71.4% of home-loan commitments. Their share of the home-loan market rose significantly compared to the upswing that took place from 2012 to 2017, when owner-occupiers’ share averaged 59.4% in terms of value.
The entry of millennials in the housing market is one of the reasons behind the boost in the share of owner-occupiers, Owen said.
"Millennial movement through the typical first-home buyer aged cohort is likely to have increased owner-occupier demand over the past 10 years or so. Reduced mortgage rates and the decline of investor participation may have further enabled first-home buyers in the past seven months," Owen said.
Read more: House values up across the board
The participation of investors was affected by some regulations such as the 10% limit on investment-lending growth and the 30% cap on interest-only loans. With the recent easing of these regulations, however, investors have been able to come back to the market, albeit rather slowly, since the upswing last year.
Affordability constraints, however, remain the market's biggest concern. Owen said these concerns might change how buyers tackle the market this year and could ultimately hand over the baton to investors.
"If affordability constraints create more demand in rental markets, the investor cohort could expand in the year to come, off the back of rising rents. This would be amplified as low mortgage rates make property investment more attractive," Owen said.
