Since Australia was first affected by COVID-19, a wave of national economic commentary has ensued. A series of fiscal and monetary interventions have been deployed to mitigate the projected damage. Australia has done pretty well so far, but it has come at a cost. According to data from the Australian Office of Financial Management, over $ 122 billion in additional government debt was issued in the first half of the year, or around 6.4% of GDP. With no signs of slowing down in the coming months, it is likely that our inflated debt will continue, albeit at a slower pace than many other developed countries.
Despite negative forecasts by some, the housing market has performed well so far. Data from the Real Estate Institute of Victoria indicates that prices in the Melbourne metropolis have edged down, falling back to prices at the end of 2019. The Victoria area, however, recorded a positive house price performance – validating the forecast that post-pandemic Australia may be redirecting to the campaign. I see this as a temporary phenomenon, but that hasn't stopped areas like the Blue Mountains west of Sydney from achieving record median selling prices.
Growth in housing finance undoubtedly fueled Australia's curious real estate performance in the first half of the year. According to the Australian Bureau of Statistics, each month of 2020 (except May) saw a higher volume of new home loans than the corresponding month in 2019, suggesting that COVID has not been as deterrent as the factors of last year, like the uncertainty of the federal election and the constraints of loan growth. As a result, the 2019-20 fiscal year also saw growth in new housing finance, the first time since 2016-17. We also saw the RBA spot rate drop 125 basis points in the space of 12 months, which boosted the ability to manage mortgages for safe employed people.
The multibillion dollar question is whether recent resilience is sustainable and whether Australia can weather the pandemic with little more than a hangover of public debt. It depends on a multitude of factors, including the need for each household to resort to mortgage vacations, as well as how long it takes for a vaccine to eliminate the threat to public health. Evidence of Australia's strengthening resolve can be seen in data which suggests the second peak had less of a sentimental impact than the first, even though the second is more severe than the first. We can observe it through two distinct lenses which suggest that the 'new normal' that we constantly hear about is upon us.
1) ANZ-Roy Morgan Consumer Confidence Index
When coronavirus cases started to skyrocket in Australia, the ANZ-Roy Morgan Consumer Confidence Index rose from 100 to 72.2 in the span of a week . He gradually recovered from week to week until the signs of the second wave started to appear, but the slowdown in confidence bears no resemblance to what was experienced during the first wave.
2) The Australian Stock Exchange
The Australian Securities Exchange market capitalization is believed to reflect the value of listed companies, but it is often a more accurate indicator of sentiment. On February 20, ASX200 peaked at 7,162 and by March 23 it had hit a low of 4,546, a 37% drop in just one month. The market began to recover the day after the peak of the first wave, showing how responsive it is to perception. The same did not happen after the second most severe peak appeared, implying a form of short-term market immunity. This could help explain why Australians have been comfortable borrowing more money to buy homes during the pandemic.
While uncertainty continues to make things difficult for short-term forecasting, it appears Australia's determination has partly contributed to the relatively strong results we've seen so far. If we can beat the virus and get everyone back to work without the help of too much government stimulus, some of us might even be better off for the experience!
Luke J. Graham is an organizational behavior and real estate market analyst. He is currently completing postgraduate studies at the University of Oxford.
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bendigo
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greenwood
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