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  • Where are today's risks and opportunities in Australia's housing market?

Where are today's risks and opportunities in Australia's housing market?

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It's beginning to feel like things are turning some sort of corner in the latest round of Covid outbreaks and lockdowns, but there's some uncertainty in the air about what comes next. 

Every quarter, BuyersBuyers and RiskWise Property Research release their Residential Property Risks & Opportunities Report which studies the ins and outs of Australian real estate, and there's no shortage of topics to investigate over the past few months. 

We talked through some of the forthcoming report's key takeaways with BuyersBuyers co-founder Pete Wargent to get a sense of what people should be wary of and where they can capitalise on the current conditions. 

Lockdowns, government stimulus and the vaccine rollout

Covid restrictions across Australia's East Coast are still top of mind when looking at how things in the market are going to play out in the coming months, but forecasts are nothing like the dire predictions seen around the beginning of the pandemic. 

The report says the Australian economy is expected to contract in this quarter, but government stimulus has "shielded the economy and housing market from the worst impacts of any downturn."

Mr Wargent explains "something that's a little bit different from the first time we saw lockdowns is that, particularly from a housing market point of view, there's less fear this time around."

With plenty of government support now in place and the vaccine rollout making rapid progress, there's a stronger sense of the path out of lockdowns, meaning consumer sentiment is in a far better place. 

Mr Wargent says with immigration still virtually at a standstill, high-density apartments in the inner-city, particular in Melbourne, continue to be oversupplied and present a risky proposition for investors. 

For the rest of the property market, though, gains look set to continue well into 2022 despite this quarter's lockdown troubles. 

Low stock and high demand coming into spring

Following on from the current Covid restrictions, the report notes that "in the housing market there has also recently been an impact on listing volumes, and transaction levels, particularly in Victoria, where it has not always been possible for buyers to attend open homes."

Outside of Victoria, though, spring listings are generally off to a slower start than usual too, while buyer demand hasn't dipped to the same degree. 

"This time of year we should have loads of properties coming onto the market, especially in September. They're down by about one third from what we would normally expect to see, and there's just not very much stock on the market," Mr Wargent says.

In Sydney especially, the effect of that is prices continuing to rise, as auction clearance rates remain relatively strong and buyers compete over a reduced number of properties. 

"My best guess is that it will be compressed into a shorter period and auctions will go on right the way through until close to Christmas instead of tapering off," he says.

Pete Wargent, co-founder of BuyersBuyers
Pete Wargent, co-founder of BuyersBuyers, expects a more densely packed spring selling season this year. 

"Generally speaking, more supply tends to spread buyers out and dampen price growth or send it into reverse."

That could suggest some risks for sellers in the months ahead, while those braving the market now seem to be rewarded by the supply and demand imbalance. 

Affordability constraints are causing shifts in the market

First homebuyers especially have been feeling the sting of this year's boom as skyrocketing prices squeeze them out of once more affordable markets. 

As the RiskWise report says, "housing affordability for new market entrants has deteriorated, and is projected to deteriorate further," noting that this is a particularly big issue in Sydney, Melbourne and south-east Queensland. 

While Mr Wargent expects the "exceptionally high" number of first home buyers in the market this year will ease off, but some will also adjust their targets going forward. 

"Probably for the remaining first home buyers, there might be more of a shift towards units and apartments, because in most cities detached house prices have gone up over the past year," he says.

This could present an opportunity for those looking to sell units, which haven't seen nearly the same rate of growth that houses have in most markets in 2021. 

On the other hand, investors look to be picking up where some owner-occupiers have left off, with the last quarter bringing a substantial increase in the number of investors buying. 

As Mr Wargent points out, investors aren't bound by the necessity to buy close to family or work, so they'll be able to extend their search to other markets showing potential. This could buoy markets beyond the likes of Sydney which have already shown extensive growth this cycle. 

Regional markets are still benefiting from pandemic behaviours

The report notes the ongoing narrative that "flexible working arrangements enable 'mobile professionals' to move to 'lifestyle locations'," explaining the rising trend of people moving from capital cities to regional hubs since the start of the pandemic. 

RiskWise expects demand for property in regional areas to remain strong, and that should mean further price growth. 

Mr Wargent suggests there will especially be high demand on the NSW North and Central Coast as well as south-east Queensland, all considered to be highly prized "lifestyle markets."

"Generally speaking people would want to be within striking distance of a capital city if possible, so places like the Gold Coast will be popular, the Central Coast—the Mornington Peninsula has already been very popular."

While coastal areas have drawn the most intercity and interstate migrants, he also notes that some inland markets like Orange have been popular with those looking for a tree-change as well.

For those considering selling in regional markets, there look to be more lucrative opportunities ahead. 

Price growth looks set to continue into 2022

Overall, even with Australia's latest round of Covid challenges, the RiskWise report forecasts there are further price gains on the way.

They expect that "the strong price growth rates are not sustainable, and price growth is likely to cool further by next year," but solid price appreciation is still on the cards for 2022. 

"It appears that only macroprudential measures or another external intervention will cool the housing market, with an increasing likelihood for the implementation of such measures, as housing credit growth and particularly investor activity increase materially."

Mr Wargent predicts tight markets like South Australia and Brisbane will see further rises next year, while Sydney and Canberra, which have been moving at a blistering pace, may have already seen the majority of their growth. 

Even so, the report expects broad-based double-digit growth in dwelling values is likely up until the end of 2022. 

"It's hard to make specific forecasts, but if I had to guess, I think a lot of the talk at the moment is about the booming market," Mr Wargent says. "I expect this time next year that narrative will have changed towards things cooling again."