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The Australian property market surprised even the most experienced economists in the aftermath of COVID-19. House prices shot up against all expectations and what’s more, they are predicted to continue surging into the future.
Latest CoreLogic data shows housing prices rose by more than 2 per cent in May 2021 and more than 10 per cent since the pandemic hit last year. With a 3.2 per cent price jump, Hobart led the charge nationally followed by Melbourne at 2 per cent, Brisbane at 1.9 per cent and Perth at 1.1 per cent.
The COVID-19 rebound was incredibly rapid with prices soaring at their fastest pace in 33 years. CoreLogic figures reveal the aggregate for Australia’s five capital cities surged by 2.8 per cent – the strongest growth since October 1988, when capital cities rose 3.5 per cent for the month.
The market’s revival came despite warnings of a dip in housing prices, forcing major banks to revise their pricing predictions from declines to inclines.
Anyone who thought the boom would be short lived or suspected the beginnings of a bubble was mistaken. Prices continued steadily upwards and as the Australian property market went from strength to strength.
Economists are now pointing to further growth throughout 2021 and into 2022 and 2023, proving now could be a wise time for anyone wanting to buy or build a home to make their move.
And modelling by the Reserve Bank of Australia forecasts year-on-year growth – 9 per cent next year and 8 per cent in 2023. Taking the median house price of $578,612 in Perth as example, that represents a $52,075 jump in 2022 and a $46,288 gain in 2023.
This unabated growth means homebuyers sitting on the sidelines may pay dearly if they decide to ‘wait out’ the price rises. It also serves as a green light for those weighing up the rent vs buy dilemma.
Here, we look at why the Australian property market is experiencing such record high price growth and why prices are set to keep rising next year.
Great time to borrow
Australian borrowers have reaped the rewards of low mortgage rates for almost 11 years now. The last time interest rates rose was in November 2010, when the cash rate was 4.75 (today it is 0.1).
The good news is low mortgage rates look set to continue, which is fortunate for many households with Australian Bureau of Statistics data showing people are borrowing more. The value of new housing finance commitments jumped by almost 70 per cent in the 12 months to April, 2021.
Borrowers can rest assured there is little threat of a rate rise any time soon. The governor of the Reserve Bank of Australia, which sets interest rates, has publicly stated rates would not increase until inflation settles between 2 and 3 per cent. Inflation is currently at 1.25 per cent, and the RBA expects it to remain below 2 per cent for at least the next 2 years.
Australia’s COVID-19 response
Australia’s response to the pandemic has been the envy of countries worldwide. Dr Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, described Australia as a leader in “containment and management of emerging variants”.
Strict measures such as lockdowns and border closures have not only kept COVID cases low when compared to other countries such as the UK and US, but also maintained a positive Australian economy. The Federal Government’s JobKeeper program helped support one million businesses employing 3.8 million workers. It’s credited with having a large hand in Australia’s economy dipping by just 2.5 per cent in 2020, compared to 9.9 per cent in the UK, 8.9 per cent in France, 5 per cent in Canada and 3.3 in the US.
Now with vaccinations rolling out across the country, businesses reopening and people returning to workplaces, there is a renewed sense of optimism in the real estate market.
In addition to low interest rates, buyers are buoyed by the fact that unemployment has defied predictions of soaring to 10 per cent. It peaked at seven per cent in October last year, but Australia’s swift rebound has seen it dip to 5.1 per cent in May, according to latest ABS statistics.
Better still, unemployment looks to remain steadily low with the RBA predicting it will be hovering around 4.5 per cent by mid-2023.
Housing supply has simply not kept up with buyer demand this year. It means there are more buyers in the market and not enough houses for sale, which is fuelling strong price growth.
The number of houses on the market is dramatically lower than what it was 12 months ago across all capital cities, highlighted by a 24.8 per cent fall in Brisbane, a 11.1 per cent drop in Perth and a 1.8 per cent decrease in Melbourne.
With demand outstripping supply, agents are reporting a spike in the number of people attending open for inspections and auctions.
Clearance rates, which is the percentage of properties sold at auction, are tellingly high across Australia’s capital cities. Nationally they reached 80 per cent over the first quarter of 2021, up from 69.4 per cent in the December 2020 quarter and 62.5 per cent in the March quarter of 2020.
More buyers in the market
After their COVID-19 imposed hiatus, buyers are now out in force. The sheer number of people searching for the right place can be measured through the REA Insights Buyer Demand Index, which shows buyer demand is almost 50 per cent above the average seen in 2019.
Many of the buyers returning to the market after holding tight during the pandemic ups and downs of 2020 are investors. Healthy capital gains, low interest rates and a resilient economy has seen them make their strongest comeback since the Australian Prudential Regulation Authority tightened lending conditions in 2017.
First-home buyers are also on the buying scene, many of them looking to exit the rental market in light of skyrocketing rental prices. Data from the Domain Rent found the cost of renting a house in Australia reached a record high in March 2021. The median rental price for houses soared by 4 per cent in the year to March, reaching $471 per week.
This sizable jump in rental prices made buying a home a wiser financial decision for many renters – a fact underlined by research showing it is cheaper to buy than rent at 57 per cent of dwellings across Australia.
The REA Insights’ Buy or Rent Report found 85.9 per cent of houses in Queensland would be cheaper to buy than rent, followed by 77 per cent in Western Australia.
Australia’s property market is experiencing phenomenal price growth, and thanks to low interest rates and strong economic conditions, prices are only set to continue rising.
The red hot pace of growth makes it difficult to justify waiting for the right time to buy. In fact, jumping into the market sooner rather than later could be one of the best money-saving decisions any buyer can make right now.