John McGrath – How COVID-19 changed the market | McGrath

John McGrath – How COVID-19 changed the market

John McGrath
John McGrath
28/03/2022 | 3 MIN READ

COVID-19 has had an extraordinary impact on the Australian property market, sparking new lifestyle and buying trends and generating incredible new wealth for homeowners who have ridden the wave of capital growth that has come with the pandemic.


Many of the impacts stem from the reduction in official interest rates to as low as the Reserve Bank was willing to take them – 0.1%. Mortgage loan rates fell too, and lots of people secured new or refinanced loans at sub-2% – a once-in-a-lifetime opportunity.


In a recent article, Eliza Owen, the head of residential research at CoreLogic, outlined what she considered to be the six biggest impacts of COVID on our market:


  1. Australian home values rose 25% to record highs
  2. First homebuyer activity spiked
  3. Rents rose 11.8% to record highs, while gross yields fell to record lows
  4. Housing debt levels hit record highs
  5. The premium of house prices compared to apartments hit record highs
  6. The rise of the regions.

The big one, of course, is the 25% surge in home values in such a short timeframe – between the end of March 2020 and February this year. The median Australian home value increased by $173,805. That’s a major boost to personal wealth for every person who owned a home pre-COVID, and new buyers have also benefitted depending on the timing of their purchase.


This rise is largely due to mass upgrading. People were spending more time at home due to lockdowns and remote working, so they started thinking about ways to improve their homes – through renovating or relocating – and low interest rates helped them afford it. The upgrading trend meant higher demand for houses, which is why the gap between median house and apartment prices hit a record high.


Upgrading often means taking on more debt, which is why household debt also hit a peak. But property values have risen with it, and RBA data shows the ratio of loan repayments to income has fallen to its lowest level since 1999. Although rates will soon rise, we are still a long way off the historical average for home loans, which is about 7%.


First home buyer activity was already high when the pandemic hit, largely due to already low interest rates and government offers such as stamp duty breaks and the First Home Loan Deposit Scheme. As rates fell further, more young people bought. But as prices have risen so strongly, affordability constraints have reduced this activity. Rents hit a record high as a result of eviction moratoriums. While this measure did protect tenants who lost jobs or hours due to COVID-19, it also dramatically reduced rental turnover. This meant asking rents went up as a result of diminished supply.


The rise of the regions is one of the most exciting structural changes I have seen in Australian property in 40 years. The ability to work from home has allowed people to design their own lifestyles much more freely, and to look beyond the big city job hubs to our many beautiful regions. At McGrath, we’ve noticed many other changes that COVID-19 has created:


1. The fast-tracking of digital technology


A big change for both the industry and the market was the fast-tracking of digital technology such as online auctions. The technology was already there but the pandemic forced all of us to adopt it en masse very quickly. The pandemic also made video crucial for online marketing and ‘virtual inspections’ using agents’ mobile phones. This was particularly important in markets locked behind hard state border closures, such as South-East Queensland. We couldn’t have met the insatiable demand from Sydney and Melbourne buyers in areas like the Gold and Sunshine Coasts without video technology.


2. Our homes are our sanctuaries


The pandemic made us see our homes as a ‘safe space’ and a ‘sanctuary’ in an uncertain world. Initially, the effect of this was a surge in renovations during the first national lockdown, later followed by the upgrading and regional relocation trends.


3. Home offices now high on buyers’ wish lists


The pandemic has also made the home office a permanent and highly desired feature in pretty much every type of property, given the prevalence of remote working now.


4. Holiday homes are back


The pandemic has re-popularised holiday homes, as discussed in our McGrath Report 2022. Several countries are still experiencing waves of COVID, so many Aussies have put off overseas travel for the foreseeable future and invested in a holiday home instead. Not only do holiday homes provide a hygienic and personalised environment, they are also proving to be wise investments given the ongoing steady rise in regional values.


5. Backlog of international demand


The pandemic has also created a two-year backlog of overseas demand that is yet to play out, with our international border only recently reopened. The key market segment to benefit from this is inner city apartments, particularly in Sydney and Melbourne.




The expectation now is that COVID-19 will be with us forever, just like the flu. Some of the impacts on the market were short term, others will endure for a while –particularly the rise of the regions and returning international demand.