Property Market Update for 2021: Despite the economic challenges of the COVID-19 health crisis, our property market here in Australia has been flying. Defying many people’s expectations, the RBA now believes there to be a 30% gain property prices to be had in the next 3 years. Here’s why:
Firstly: Everyone got it wrong
Who would have thought the property market would have thrived as much as it has through a worldwide pandemic and an economic recession? Well not only did we all think that property prices were going to drop by 20-30% at the start of COVID-19. We sure as hell wouldn’t have thought there to be insatiable growth to new record highs and a predicted growth rate that’s out of this world. For anyone looking to sell – the floodgates are open. And the water is charging hard. Why? Well as host Andrew Baxter exclaims, there’s an undersupply of houses and an oversupply of buyers – pushing prices higher. Great for sellers, not so good for buyers on the other hand.
For anyone thinking that what we’re saying is a load of horse crap please keep in mind that these broad claims vary from place to place. For example, one concept we have spoken about largely is the record high vacancy rates of rental properties. This is certainly true in large, CBD areas like Melbourne and Sydney. However, for anyone on the Sunshine Coast for example or in rural areas – vacancy rates are at record lows.
Anecdotally what we have noticed is that people are starting to turn their back on the big cities and opt for residence in the suburbs or rural areas. A result of the safety risk in busy areas? Or merely a change in market trends?
The polarisation between houses and apartments
One of the many market trends we have seen come as a result of COVID is the growing demand to live in houses. And the lack of apartments. This became noticeably apparent when, as host Andrew Baxter mentions, we saw rental yields for apartments free fall by 5.1% in just the December ending 2020 quarter. In contrast, rental yields for houses have gone through the roof (no pun intended). So, why is this? Quite simply – interest rates are at all-time lows. This has given rise to a lot of retirees or older Australians purchasing more houses because they’re comfortable taking on more debt.
There’s also no incentive to be holding at cash at the bank – money has to go somewhere, hence the reason for such rapid increases in both the property market and the stock market. On the other hand. From the buyer’s point of view – sitting in a one-bedroom apartment with your loved one whilst you both work from home 8 hours a day will more often than not cause some serious stress. (Or maybe a screaming match or two). This has meant many young Australians are leaving the city to live out in the suburbs where they have more space – again. Driving house prices and rental yields higher as demand grows.
Shifts in where the money is being spent
Not only are we seeing some major demographical tailwinds push prices and yields higher for the property market. But we are also seeing some major shifts in where consumers are spending their money which has added to the surge at hand. In fact, credit card delinquency rates are at all-time lows, consumer confidence is at all-time highs. Fiscal stimulus is being pumped through our veins and people simply aren’t travelling anymore.
With schemes like the early access to super, first home buyers grant, new home builders, grant. And instant asset write offs – this has left many Australians with a lot more cash in their pocket and the confidence to then invest it. (Not to mention the willingness of banks to open their check books up for you to gear up). People aren’t spending their money on airplane tickets across the world. They’re looking to invest their money in either stocks or shares which has, in turn, caused inflated prices.
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Economically, we’ve never been in this situation before – interest rates are at an all-time low. Unemployment nearly at an all-time high and a recession looming. Quite frankly that is scary. Yes, we are seeing immense gains in the stock market and in our property market which as, as host Andrew Baxter says, turned every economic playbook over on its head given it is what no one would have expected. With the absence of foreign buying, it is great to see some home-grown success. However, the music has to slow down at some point and things return to normality. Our advice – do your research, stay diversified and ultimately, be careful!