• The end of mortgage deferrals on March 31 is unlikely to slow rising house prices, REA Insights state in a new report.
• “I expect that any increase in forced sales will be small and property prices will keep rising,” said Cameron Kusher, REA Group Director of Economic Research.
• REA says house prices rose 0.4% nationwide in February, buoyed by low interest rates and relatively low rates of housing stock.
• Visit Business Insider Australia’s homepage for more stories.

Not even Australia’s mortgage deferral ‘cliff’ will stop house prices from surging in 2021, according to new analysis from REA Insights.

In its new Home Price Index Report, released Tuesday, REA states home prices nationwide rose 0.4% over February, and climbed 5.9% over the year.

The REA findings stop short of the 2.1% February spike in property values reported by CoreLogic, but point to the same contributing factors: low volumes of available housing stock, rock-bottom interest rates, and a suite of government interventions which safeguarded Australia’s housing market during coronavirus lockdowns.

Cameron Kusher, REA Group Director of Economic Research and author of the report, said “borrowers can now access fixed rate mortgages from major lenders for less than 2% and clearly many are doing just that.”

Given the Reserve Bank of Australia’s decision to keep the interest rate pegged at just 0.1%, the trend seems likely to continue.

Only the long-awaited contraction of government support measures is expected to shake the historic housing rally, said Kusher said in a statement.

Even then, Kusher doesn’t predict much damage to ballooning house prices.

“The main potential bump in the road to recovery will be what happens as government and banking support is wound down over the coming months,” he said.

“While the share of mortgages on deferral remains low, the removal of JobKeeper and JobSeeker may lead to an increase in forced property sales.

“I expect that any increase in forced sales will be small and property prices will keep rising.”

Beyond the cutbacks to JobKeeper and JobSeeker — which social service advocates and banks predict will cause financial pain — the ending loan deferral period has figured in many financial doomsday predictions.

The practice saw banks grant loan repayment holidays to homeowners and businesses in financial distress. More than 900,000 deferrals were granted at the peak of the crisis, according to the Australian Banking Association (ABA).

That grace period was slated to end on March 31, sparking fears of a looming debt ‘cliff’, with financially vulnerable Australians suddenly unable to service hundreds of billions of dollars worth of deferred loans.

Fears eased, slightly, as financial conditions improved. In January, the ABC reported the number of active home loan deferrals sat at 101,342 — down from a peak of nearly 500,000.

But Australian banks still had $28.7 billion of deferred loans on their books last month.

Speaking to ABC’s AM late last month, ABA CEO Anna Bligh said some sell-off from at-risk homeowners was unavoidable.

“There will be some people who will have to face the very hard and painful decision of doing the right thing by selling when they still have equity and money that they can take out and keep their head above water,” she said.

But Bligh dismissed any suggestion of a ‘cliff’, saying further protections would guard against a mass sell-off.

“For some people, in some circumstances, they may get another small period of deferral,” she said.

“Others may be expected to pay something, but not everything.”

REA appears to agree, suggesting the number of vulnerable homeowners forced to sell up when loan deferrals expire won’t impact the market at large.

“From here, it is expected that we will continue to see prices increase over the coming months,” Kusher said.

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