How has COVID-19 changed housing finance?

By Gerv Tacadena

Prior to the onset of the outbreak, finance conditions were already favourable to homebuyers

The COVID-19 outbreak has led to a shift in monetary policy and financial regulation that will ensure low-cost debt to continue supporting spending, according to the latest report from CoreLogic.

Eliza Owen, head of residential research at CoreLogic, said housing finance conditions were already becoming "more accommodative" for potential homebuyers even prior to the onset of the COVID-19 restrictions.

"Monetary policy and financial regulation have sharply shifted in response to COVID-19. Policies now focus around deferring the implementation of a more conservative lending environment, ensuring high levels of liquidity among lenders," she said.

Owen said the cash rate, which was lowered by the Reserve Bank of Australia to 0.25%, will likely stay low for years.

Rate cuts tend to have an inflationary effect on house prices. A 1% reduction, for instance, could push property prices up by 8% over two years. However, Owen said this might not be the case in the current market conditions.

"Due to extraordinarily low levels of consumer confidence, it is less likely that the record-low cash rate would lead to further increases in prices in the short term," she said.

Owen warned that if income cuts affect the ability of Australians to service their loans, there could be a spike in distressed sales. This could, in turn, drag housing market values down.

"It is worth noting that no such signs of distress are yet visible in the housing market. This is supported by a very low level of for sale listings," she said.

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