2021 Property Market Projections And 2020 Market Review
2020 was a roller coaster of a year, but thankfully, the housing market and the economy appear to be bouncing back. Here is a review of the 2020 real estate market & a look at where the property market may go in 2021.
Current state of the property market
As COVID-19 hit Australia in March last year, economists were predicting a 15% drop in home values. However, the impact was much less with housing values falling just 1.9% between March and September 2020, before moving into a recovery trend, increasing 0.4% nationally through October and 0.8%. in November.
Housing values in Brisbane, Adelaide, Canberra and Hobart are now at record highs and Sydney and Melbourne prices are similar to early 2017 at the end of the 2012-17 boom.
This is about as clear a demonstration as you could ever get that Australian property is resilient.
Median house prices Jan 1 - Nov 30
- Sydney +2.9%
- Regional NSW +6.8%
- Melbourne -3.1%
- Regional VIC +3.6%
- Brisbane +3.3%
- Regional QLD +5.7%
- Canberra +7.8%
- Adelaide +4.7%
- Regional SA +5.6%
- Hobart +6.7%
- Regional Tas +9.3%
- Perth +0.9%
- Regional WA -5.0%
- Darwin +9.3%
- Regional NT 0%
Source: CoreLogic Hedonic Home Value Index, published December 1, 2020
Lending for residential property purchases have soared
“Despite an initial slump in housing finance through the beginning of the year due to the COVID-19 pandemic, the year to October saw a remarkable 14.5% lift in the volume of finance secured for the purchase of property, according to ABS lending indicators.” 1
Record low interest rates undoubtedly have helped fuel this and home buyers have never been better placed to get finance and meet their mortgage repayments.
According to CoreLogic’s Head of Research Eliza Owen “The post-COVID mortgage lending boost was driven by owner-occupiers including changeover buyers such as upsizers and downsizers, as well as buyers getting into the property market for the first time.”
“Money lent to first home buyers saw the fastest growth rate at 35.1% in the year to October, accounting for 22.1% of lending, up from 18.8% in the year prior. Meanwhile, investor mortgage lending increased less than 1% in the same period. There are several factors that contributed to this growth in first home buyer activity, including generational trends, monetary and fiscal incentives and lower dwelling values and competition,” says Ms Owen.
If you’re interested in finding out how much you borrow talk to our team at Oxygen Home Loans here.
Deferred Mortgages have dropped
As COVID took hold, most lenders offered their mortgage holders the opportunity to defer their home loan repayments for up to 6 months. According to the Australian Banking Association, in late June approximately 500,000 home loans had been deferred by Australian homeowners.
Fast track to October and the number of deferred mortgages had dropped to 270,000 meaning almost half (45%) of deferred mortgages are back to regular loan repayments.
“This is a good sign for the economy according to Australian Banking Association Chief Executive Anna Bligh, as it shows that more Australians are getting back on their feet and resuming their loan repayments”.
Strong household savings
The savings rate among Australians has surged in 2020.
Although unemployment has risen and wage growth is low, household savings have increased. This is a result of the Federal Government’s JobKeeper wage subsidy policy and the increase in welfare payments under JobSeeker. In addition, for those Australians who have retained their jobs, the recently announced Federal Budget tax cuts have also helped contribute to higher disposable incomes.
Since the start of the pandemic households have saved over $100 billion according to the Australian Prudential Regulation Authority2 and while this savings trend may continue into 2021, we may find that some of this money flows into the property market through home buyers and investors.
Jobs market rebounding
According to The Westpac's ’Melbourne Institute Unemployment Expectations Index, the consumers’ labour market expectations improved dramatically in December. The index dropped 16.2% to 106.3 implying a major easing in job loss concerns. (Nb that lower readings on the Index mean fewer consumers expect unemployment to rise in the year ahead).
As Westpac details, the improvement is likely to have been the government’s winding back of its forecast for a 10% unemployment rate by December and the widely reported October employment release which printed a remarkable 178,800 new jobs. Consumers may also be detecting a shift in labour markets through their own direct experiences.3
Government incentives still around for a while
Since the onset of COVID, approximately $500 billion4 in economic support has helped underpin our economy and while some of these are being pulled back, a number of the COVID response measures have been extended into 2021 including:
- HomeBuilder grant has been extended until 31 March 2021
- Extension to the First Home Loan Deposit Scheme
- Stamp duty payment suspensions in NSW on properties under $800,000
- Stamp duty concessions in Victoria for homes valued up to $1 million
- Victorian Homebuyer Fund
- State based First Home Buyer Grants
Consumer sentiment is at a 10-year high
According to the Westpac-Melbourne Institute Index Consumer Sentiment lifted by 4.1% in November and is now 48% above the low in April. In fact, it has reached its highest level since October 2010.5
While consumer confidence dipped dramatically in April 2020 as a result of the pandemic, the evidence seems clear that sentiment is fully recovered from the COVID recession which is great news. As Westpac explains the rebound relates to the “resilience of the financial system; and the rapid, pro-active responses from authorities which have been critical to containing the economic damage”.5
In addition to this, NAB’s November business survey6 has also shown a substantial lift in business conditions and business confidence - not quite as rapid a recovery trend as the consumer sector, but both indicators are now above pre-COVID levels and above the long run average.
Both the Westpac Consumer Sentiment report and the NAB business survey indicate that the economy is bouncing back. Conditions do however remain fragile and vary across states, regions and industries.
What may happen in the 2021 property market?
Whilst we certainly don’t have a crystal ball, looking at the positive trends detailed above and insights from realestate.com.au’s Property Demand Report, “year-on-year data clearly shows that buyer demand is strong despite the recent holiday season weakening and they expect that the high level of demand will continue into 2021.”7
Low interest rates, strong household savings and the various government stimulus packages are likely to continue to drive strong demand for property and with high demand normally comes an increase in prices.
The primary issue we may see is demand outweighing supply, however with prices increasing and a vaccine on the horizon we may find more homeowners willing to test the market and put their property up for sale.
CoreLogic predict, demand will move away from the inner-city precincts of major cities to lower density housing styles, outer-ring suburban and regional Australia.8 They also predict that investors will focus their attention on areas such as Perth, Brisbane, Darwin, Adelaide and key regional centres , where rental markets are tightening, yields are higher and prospects for capital gain are stronger.8
A final word
What lies ahead for 2021 is up for debate but one thing is for certain, we are all happy to see 2020 behind us. If you would like to talk to one of our Sales Agents about what they see happening in your local property market in 2021, connect with them here.
1. CoreLogic Quarterly Economic Review: November quarter data
4. CoreLogic 2020 Wrap Report, December 2020
8. CoreLogic Market Chart December 2020
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