John McGrath - End Of Year Wrap - Prices Up in 2020 Despite Pandemic

John McGrath

14/12/2020 | 3 MIN READ

What a unique year this has been. A once-in-100-year pandemic, lockdowns, border closures, job losses, a new socially-distanced lifestyle and the first recession in 29 years and yet, the median house price in every capital city bar Melbourne and many regional areas went up, latest data shows.

Despite all that we’ve been through and the uncertainty it brought to the market in the middle six months of the year, 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

No surprise that Melbourne is lagging due to the second wave and lockdown; and regional WA hasn’t yet recovered from the end of the mining boom but green shoots are appearing as mining ramps back up again.

A number of factors are keeping residential house prices on solid ground. They are as follows:

Record low interest rates
JobKeeper and JobSeeker
Mortgage repayment deferrals
Various measures to support business
Early access to superannuation
No international travel encouraging upgraders (record high owner occupier lending in October*)
Raft of first home buyer incentives (loans 30% higher than pre-COVID*)
Extended HomeBuilder program (construction loans up 65.5% since July*)
Work from home trend encouraging regional relocations and boosting regional values
Rising consumer confidence on the back of improved virus cases management
Very low supply of homes for sale (24% below the 5-year national average^)
Positive vaccine news and expected approval in Australia in the first quarter of 2021

*Australian Bureau of Statistics; CoreLogic

The key challenges in 2021 will be virtually no population growth via immigration (except some international students); the scheduled end of JobKeeper and mortgage deferrals; and lack of investor activity.

Selling conditions are likely to remain strong for houses, with easier lending from early 2021 due to the anticipated removal of responsible lending obligations likely to boost activity further.

Selling conditions for apartments will be weaker by comparison, especially in inner city Sydney and Melbourne where the exodus of overseas students and young people has pushed vacancy rates up and rental returns down.

We might see some investors selling next year, which will add to supply. This could present good buying opportunities with a long term view.

Owning property remains the Great Australian Dream. Two out of three residences are owned or mortgaged and 2.2 million Australians own one or more investment properties.

History paints a glowing picture of property price resilience in Australia. House prices have rebounded after every recession or downturn in the past 50 years, including the early 1990s recession and the Global Financial Crisis.

As discussed in our McGrath Report 2021, the importance and safety of bricks and mortar is set to become further entrenched into the Australian psyche following the pandemic.

We’ve been reminded that our homes are much more than gold mines producing exceptional wealth through long term capital gains. They are also safe houses, providing comfort, refuge and financial flexibility in tough times. To read more about this, download the McGrath Report 2021 here.

I wish you and your family a great Christmas and a safe and happy holiday season.

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.

This article originally appeared in The Real Estate Conversation (December 14, 2020)