Will there be a September cliff for housing?

When September ends

Australia's monster JobKeeper stimulus is due to expire at the end of September, unless the government elects to continue with targeted measures for the hardest hit industries (as it probably should). 

Mortgage holidays are also due to end in September, with about 1 in 14 Aussie mortgages having been deferred.

A total of around 776,000 or $234 billion of loans were put on ice, of which about 480,000 were residential mortgages with a total value of approximately $174 billion.

On the positive side, many of those taking mortgage holidays have begun to make repayments again, and ABS surveys point to low levels of financial stress, while it looks increasingly likely that the unemployment rate will peak at around 7-8 per cent and mortgage rates have continued to tumble to record lows. 

It's also the case that such apparent and widely-discussed known risks most often prove to be a fizzer since effective solutions tend to be found in time, as we recently discussed on Apple's #1 Business Podcast The BIP Show (listen here from 12:30). 

The above having been said, even in the deepest financial crises in Europe it's been the case that most mortgage payments continued to be made on a timely basis, with systemic risks tending to arise at the margin.

Melbourne listings mount

Melbourne housing prices have fallen by -2.8 per cent over the three months since April 6, according to CoreLogic's daily home value index, to date largely driven by the upper quartile of the market. 

Generally speaking financial markets appear to be functioning, and housing markets have in the main behaved themselves through the shutdown period.

But notably listings in Melbourne are now beginning to mount, rising to above 40,000 in June. 

While listings are down year-on-year across all other capital cities, in Melbourne listings are now showing a double digit percentage increase from a year earlier. 

On a nationwide basis rental vacancies and conditions have effectively now normalised, and indeed some sub-markets are now tightening as renters regain the confidence to sign leases.

However, many Airbnb hosts and landlords operating student rentals in Melbourne's CBD and Docklands hubs are facing down a dire predicament.

Rents have been falling and some towers are sitting largely empty, as travel has been heavily restricted and around 125,000 international student visa holders have remained stuck overseas. 

There are presently more than 3,100 rentals available in Melbourne's Central Business District, plus around 1,800 CBD listings on Airbnb, while the Docklands area boasts a further 820 rental listings.

Given other reputational issues surrounding city high-rise apartments, such as construction defects and combustible cladding, it'll be a tough sell for landlords hoping to exit the market before 2020 is out. 

Navigating the cliff

History shows that systemic risks tend to become more elevated when property owners lose confidence in a falling market, and business and consumer confidence in Melbourne appears likely to be shattered by the news of a further six-week lockdown. 

Using sensible boundaries to denote the respective metro areas Greater Melbourne is now effectively Australia's most populous capital city, and as such presents a clear systemic risk should the mortgage market be allowed to run awry. 

Most people understand that landlords need to accept some risk.

But for as long as international and certain domestic borders remain closed it may be deemed sensible to allow lenders the discretion to defer repayments on problem mortgages for stressed borrowers until the end of CY2020, even if this means lenders utilising capital buffers to absorb the shock. 

Lenders may also opt to work with some borrowers by extending the loan repayment terms or offering an interest-only period. 

Overall, Australia has fared far better than expected with regards to COVID-19, but Victoria's recent outbreaks now account for 772 active cases of the virus.

Over the medium term Australia's reputation as an international destination of choice will likely be enhanced by its handling of the current crisis, but we aren't quite out of the woods yet.

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Edit: Swift and effective, struggling bank customers will be given another 4 months to start paying back their loans.

Reported via the ABC here.

Support could, quote: "...include extending the length of the loan, converting to interest-only payments for a period of time or consolidating their debt."