John McGrath - EOFY Wrap And Trends For FY21
It’s been a year of surprises that began with a returned Liberal Coalition Federal Government and falling interest rates, which injected new confidence into the market and a pivot back to growth.
We’re ending the year in the midst of the world’s first pandemic in more than 100 years, with the first recession in Australia in three decades now underway because of it.
Yet property continues to demonstrate its magnificent resilience, with only slight falls in the median value of East Coast capital city homes and impressive price stability in regional areas since this all started.
At a Glance:
- Capital city home prices have fared well despite the Australian economy slipping into a Coronavirus induced recession
- East Coast capital city homes went up by 13.3 per cent in Sydney, 10.2 per cent in Melbourne, 6.3 per cent in Canberra and 4.4 per cent in Brisbane
- Turnaround from FY19 when values fell by -9.9 per cent in Sydney, -9.2 per cent in Melbourne, -2.6 per cent in Brisbane and went up 1.4 per cent in Canberra.
- Over FY20, East Coast capital city homes went up by 13.3 per cent in Sydney, 10.2 per cent in Melbourne, 6.3 per cent in Canberra and 4.4 per cent in Brisbane.
This is a turnaround from FY19 when values fell by -9.9 per cent in Sydney, -9.2 per cent in Melbourne, -2.6 per cent in Brisbane and went up 1.4 per cent in Canberra.
Home values in East Coast regional areas also grew in FY20. Regional Victoria was the standout at 4.6 per cent, followed by regional Queensland 4.5 per cent and regional NSW 3.9 per cent.
The property market is pretty stable overall but as expected, we have seen a shift in prices of about -5 to -10 per cent in many markets.
Official data shows less due to the lag effect.
Employment is the biggest economic macro affecting property and there’s been 835,000 job losses reported by the Australian Bureau of Statistics so far (likely higher but JobKeeper recipients are recorded as employed).
Another big macro is consumer confidence but this is actually on the rise, with the weekly ANZ/Roy Morgan consumer confidence series recording a 42 per cent lift between March and June.
This has contributed to more new listings coming onto the market and more going through to auction instead of selling prior.
After a 33 per cent dip in April, national sales volumes bounced 21.5 per cent in May and 29.5 per cent in June, according to CoreLogic. That’s an impressive ‘snapback’.
We still have a general shortage of stock for sale and this has been a stabilising factor for prices. We’ve seen many sellers surprised and delighted by strong auction results.
We’re not seeing distressed sales yet because JobKeeper, JobSeeker, early access to super and bank repayment holidays have kept people financially afloat.
A big test is coming in September when JobKeeper ends and mortgage repayments resume.
Prime Minister Scott Morrison has hinted that some form of stimulus support will continue and we’ll find out more about that in Josh Frydenberg’s economic update on July 23.
While the media continues its scare-talk of an ‘economic cliff’, remember that the Morrison Government has done a magnificent job managing this pandemic, so much so that we were the only advanced economy to receive an upgraded outlook from the IMF last month.
Governments are already moving to soften the recession by fast-tracking infrastructure projects nationwide and introducing HomeBuilder to boost the crucial residential construction sector, which directly or indirectly employs about 6% of the workforce.
As we wait to see how this all plays out, here are some trends I expect to see in FY21.
- Millions of Australians have already changed their living arrangements to save money and this will continue, particularly multi-generational households
- More people will work from home permanently and relocate to lifestyle locations
- Foreign investors and ex-pats are perceiving Australia as a ‘safe haven’ and returning. The lower dollar is also encouraging ex-pats
- Renters will have great choice and negotiating power. No immigration and fewer international students will hit inner city and university areas hardest
Record low interest rates will be one of our saving graces during the first year of recession.
With home loan repayments usually our highest monthly household expense, I encourage everyone to do a home loan health check ASAP to see if there is scope to reduce costs now.
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 (July 6, 2020)