18/02/2021
In the last 21 years, I've seen many predictions of a collapse in residential property values. None of these predictions has ever eventuated. Aussie property proving to be as safe as houses!
Bank analysts forecast on the national property price have changed from ‘doom and gloom’ to one of a booming market .
At the start of lockdown last year, CBA was warning Australian house prices could go downhill, fast, as much as 32% and even set aside $1.5 billion to cover the potential losses from the COVID-19 recession. Other major bank rivals were also expecting a double-digit house price decline over the next couple of years. Westpac and the ANZ were both predicting a 10% decline in national property values. The NAB predicted falls of up to 15%.
But now property prices are rising like a mighty phoenix once again and the banks have revised their forecast upwards. How come?
What drives behaviour in real estate is exactly the same as what drives prices for any other product. It responds to the balance of supply and demand. The pandemic naturally dampened the demand from buyers in many areas as people worried about job security and couldn’t inspect properties due to lockdown restrictions. But at the same time, sellers restricted the supply of properties by taking existing listed properties off the market, putting off listing their homes while they waited for greater certainty on the outlook. While demand fell temporarily, supply also fell keeping the market balance.
Major changes such as record low interest rates, relaxing of some borrowing policies, stamp duty reduction (state level) and other incentives (eg First Home Super Scheme, First Home Deposit Scheme) further stimulate demand for property. Home buyers and investors are returning to the market faster than sellers and likely face a shortage of supply. And more buyers and sellers would only mean property prices are likely to keep rising this year.
▪️High apartment vacancy rates
House prices could rise by 16% over the next 2 years and surpass apartment prices. What causes this disparity? Apartment market has been the hardest hit due to the stoppage of overseas migrants, students and holiday makers. Notably, 70% of Melbourne’s CBD apartments are owned by investors. There are probably investors out there who haven’t had a tenant in months. More investors would be forced into selling or they could wait it out until we get vaccines, and the government allows immigrants back again.
According to Gareth Aird – CBA’s Head of Australian economics, apartment prices could rise by 9% in the next 2 years with a 5% growth forecast for 2021 and 4% for 2022.
▪️Regional market outperform capital cities
Work as we know it will never be the same. As most people have toiled away remotely for nearly a year, people realise they can do their job from anywhere and have appreciated the flexibility experienced during the pandemic. This fuels their desire to live in regional areas with better views and lifestyle instead of city areas.
According to CoreLogic last week, dwelling values have increased by 6.6% in Adelaide within one year, by 4.4% in Brisbane and 4.3% in Perth. That compares to a modest rise of 2.2% in Sydney and a decline of 2.1% for Melbourne as reflective of 2 extended lockdowns in the previous year plus the recent snap lockdown.
▪️Regulator’s involvement?
Regulators are keeping a close eye on lending standards and there is a 40% chance they would attempt to slow down the market within the next 12 months to avoid overheating.
However, the Reserve Bank is unconcerned about a potential housing bubble since unemployment is still high and economic activity is low to trigger this. The increase in house prices comes with poor affordability of housing which could also weigh on the purchasing sentiment.
