The latest housing data shows that median prices for detached properties are reaching record highs — and this is despite international border closures and next to zero net migration.
The past 12 months have been interesting to say the least, and any insight or commentary around the housing market is complex at best. While forecasters are doing their best to reveal what the future may hold, there are many unpredictable factors at play. One thing is for sure though — in many parts of the country, we’re in the middle of a seller’s market.
The current property boom is unlike any other
All signs are pointing to another property boom; auction clearance rates are soaring, home lending is at record highs, and Westpac’s leading economists are predicting a 20 per cent rise in housing values over the next two years.
With the backdrop of a pandemic, the property landscape is completely different to previous booms.
The most stark differences being that the current recovery is house-led, compared to the past where investors were the driving force behind large price increases across the country.
According to Tim Lawless from CoreLogic, in 2015 property investors made up around 46 per cent of all new mortgage lending. Today, investors account for just 23 per cent.
With record levels of government stimulus and intervention, conditions are currently favourable for owner-occupiers, with a range of concessions on offer, as well as the lowest interest rates in history. ABS figures show that new loan approvals to owner-occupiers have leapt by 61 per cent.
With low levels of stock on the market and an increase in buyer demand, prices are being pushed even higher. Industry experts have coined this boom as ‘divergent’ — recent figures from CoreLogic show that property values in rural and regional areas rose by almost 10 per cent last year, which was five times the growth seen in Sydney.
All of this is happening amongst the slowest population growth since WWI.
What’s happening on the job front?
On the jobs front, according to the latest Australian Bureau of Statistics (ABS) data, the unemployment rate is headed in the right direction. In January, the jobless rate dropped to 6.4 per cent, when economists expected a milder fall to 6.5 per cent.
The ABS says this is the result of a 29,100 rise in the number of people employed in the month, with a 59,000 jump in full-time positions offset by a decline in part-time workers.
According to Prime Minister Scott Morrison, 93 per cent of people who lost their job when the pandemic recession first hit are now employed.
“Our economic recovery plan is working,” he told the Australian parliament last week.
While the latest Australian Bureau of Statistics (ABS) data suggests that a recovery is well underway, economists and the Shadow Treasurer Dr Jim Chalmers are warning that the economic outlook is not as rosy as we may think.
“A lot of what we are seeing in the labour market is the inevitable recovery from the deepest and most damaging recession in almost a century,” he said.
While the current unemployment rate is comfortably below the 7.5 level seen in July 2020, it is still well above the 5.1 per cent rate seen before the virus hit our shores.
While the treasury does expect that the end of JobKeeper by April will cause some job losses, they don’t expect losses to be in the hundreds of thousands.
The economic recovery could be described as divergent, too. Some refer to it as a “K-shaped” recovery, where those in the upper-half of the K have been less impacted by the pandemic. These are people who were less likely to have lost their jobs or suffered from reduced work hours, or who own properties in areas that are on a strong trajectory for capital growth over the next few years.
It’s those on the lower-end of the K who are likely to suffer the most.
How will the end of JobKeeper impact the property market?
According to CoreLogic, given that the economy has outperformed forecasts and that the labour market has performed strongly, the winding back of fiscal support is not expected to have a big impact on the property market.
The industries hit the hardest by the downturn are those that typically employ people who are more likely to rent than own property; these sectors include hospitality, services, arts and entertainment.
As a result, the tapering back of stimulus measures is not expected to have a huge effect on property prices, as falling mortgage deferral balances suggest that a major influx of distressed properties are unlikely to hit the market.
Richard Holden, Professor of Economics at the University of NSW recently told Domain that, “for owner-occupiers, if they have a regular wage and can make the mortgage payments it’s not so much a risk.”
“If it’s people who have negatively geared [then] it’s a worry and looks much riskier,” he continued.
It’s clear that the outlook for investors in certain markets isn’t quite as straightforward.
While property prices are soaring across the country, there are some pockets that are on shaky ground.
Investors who own properties in the inner-city high-rise markets of Sydney and Melbourne are no doubt feeling the pinch, with unit rents continuing to fall. Since student migration is essentially at a standstill, with no indication of when borders will re-open or that migration will ever return to previous levels, investor interest in these markets is likely to continue to fall.
Conditions are favourable for sellers
If you’re looking at selling a property, in many parts of the country, now is the time to pounce. Supply is down and demand is up, which is pushing home prices thousands of dollars above the asking price as the fear of missing out begins to take over.
Westpac Economists Bill Evans and Matthew Hassan have said that we are now in a seller’s market, with buyer demand outweighing the number of properties currently for sale.
“The upturn is being supported by record-low interest rates, the confident expectations amongst borrowers that these rates will remain low for years to come, ample credit supply and an improving economic backdrop as the rollout of vaccines promises to bring the pandemic to an end and drives a sustained lift in confidence,” they said.
With proposed changes to stamp duty, and the winding back of lender obligations that will provide easier access to credit on the horizon, we can only expect buyer demand to continue on an upward trajectory.