House Prices To Continue Rising in 2021
When COVID was beginning to unfold across Australia and the world in the early part of 2020, property experts and media pundits began to predict sharp falls in house prices.
The Commonwealth Bank forecast a potential 32 per cent house price crash with the other major banks also believing we would see similar drops over the course of 2020 and beyond.
As 2020 wrapped up, CoreLogic released its house price data which showed that house prices actually increased by 3.0% across the nation. Those increases came on the back of widespread lockdowns in our two largest cities of Melbourne and Sydney and during a time that the unemployment rate jumped to 6.9%.
The huge falls that were forecast for 2020, not only didn’t eventuate, but the national property market is now looking stronger than ever.
Two of the key reasons for the resilience of Australian property has been the RBA acting swiftly to cut official interest rates to just 0.1%, which has seen mortgage rates drop under 2% for the first time in our history. For many potential home buyers, it quickly became better to buy than rent, thanks predominately to the RBA.
The other reason has been a surge in both Federal and State Government incentives that have helped encourage first home buyers to enter the property market.
What we’ve seen clearly throughout 2020 are house price rises being led by first home buyers entering the market, premium properties seeing strong demand and a clear shift towards the regional areas.
The move to the regions came as a practical one when COVID lockdowns started to impact millions of Australians. According to CoreLogic, regional areas of Australia saw a 6.9% increase in house prices, compared to just 2.0% in the major capital cities.
In December alone, CoreLogic data shows that every capital city saw price increases, while the regions again outperformed increasing in value by 1.6%.
What is important to note is that at this stage, house price growth is going to be a game of musical chairs.
What that means is that without overseas migration to help drive demand for property, there will be some clear winners and losers as people choose where they want to live.
This is clear when we look at the price increases in the likes of Brisbane, Darwin, Adelaide, Hobart and Canberra. Anecdotally, we have seen people leaving the Melbourne and Sydney inner-city areas, in search of a sea and tree change and this is helping to drive prices also.
Real Estate Institute of Queensland (REIQ) chief executive Antonia Mercorella has noted that the REIQ estimated interstate demand for property has jumped by about 20 per cent on last year.
“The interest from interstate is very significant at the moment, even before COVID-19 Queensland was the number one destination for interstate migration,” she said.
“Of course, since this pandemic has hit, that demand from interstate buyers — particularly New South Wales and Victoria — has grown even stronger.”
The ABS noted similar evidence in their June data, saying ‘Queensland gained the most people from net interstate migration (+6,800) over the June 2020 quarter, while New South Wales lost the most (-4,000).’
‘Victoria had the largest change in net migration, decreasing from +600 people in the previous quarter to -3,000 in the June 2020 quarter. This was a result of arrivals decreasing from 18,200 to 15,900 and departures increasing from 17,600 to 19,000.’
Will Investors Follow?
For the most part, the movement in house prices has been led by various segments of the owner-occupier market.
As we’ve already seen, many of the Government incentives that were put in place like HomeBuilder, were specifically targeted at owner-occupiers. However, there does still appear to be room now for investors to come back into the market as well.
CoreLogic notes that four of the eight capitals are still recording dwelling values lower relative to their previous peaks. Melbourne home values are still -4.1% below their March 2020 peak and Sydney dwelling values need to recover a further 3.9% before surpassing the previous July 2017 peak. Perth and Darwin’s values remain -19.9% and -25.7% below their 2014 peaks.
Clearly, property markets are still not overheated by any strength and with yields of 4.5-5% in many areas and cities outside of Sydney and Melbourne, residential property continues to be a very appealing proposition.
Just released confidential analysis by the Reserve Bank of Australia suggests house values could jump 30 per cent over three years if borrowers believe the cut in interest rates is permanent. The RBA is also on alert for these ultra-low borrowing costs inflating a credit-fueled asset bubble and financial regulators like APRA are ready to act if necessary, but so far the central bank believes lending standards are prudent and sees rising asset prices as a net positive.
We also need to be aware of the role that returning Australian expats are having in relation to overall population growth, as Acting Prime Minister Michael McCormack said a week ago –
“If you look at the returning Australians, the total registered to return, there’s more than 37,000. That’s a lot of people,” he said.
“But the total number of Australians who’ve returned since 18th of September is more than 71,000 and the total number of Australians who’ve returned since the 13th of March when the Prime Minister asked Australians to come home is 443,000.”
With record low-interest rates and an economy that is very quickly turning around, we should expect to see more growth in property prices in 2021. However, until we see overseas migration, where the growth occurs will continue to be a game of musical chairs.