John McGrath – Pandemic creates new long term Australian property trends
We’re through the first month of the busy Spring selling period and the market is holding up well. Using Sydney as a benchmark, auction clearance rates in September held above 60%. This is despite an increase in the number of homes going to auction, so this is very positive.
At the moment, we think the market is close to the bottom. We know that with corrections the market rarely goes down beyond 10%. Buyers probably have another six to nine months to take advantage of recent price falls before the rebound begins. After that, prices will head back up probably in the order of at least 5%.
Looking back, COVID-19 has certainly turned a lot of long term trends in Australian property on their head.
We are embracing immense change and enjoying many new choices relating to where we live, the type of homes we buy or build, our personal lifestyles and our ability to generate wealth through property.
Our theme for the newly released McGrath Report 2023 is ‘chaos creates opportunity’. To me, the most interesting elements of the pandemic wash-up in our market are the reversal of some decades-old trends.
They include the rise of the regions; the renaissance in the way we are living; and that many of us — particularly young millennials — are no longer necessarily constrained by big city affordability challenges that have forced many people to live in smaller spaces.
Affordability changed the traditional Australian dream of a house on a quarter acre block. In its place, the desire for property ownership of any kind took over and new trends emerged, such as families adopting apartment living and young people ‘rentvesting’.
COVID-19 has disrupted all of this. The new home workplace has allowed people to buy larger homes in locations that suit their budgets and provide their dream lifestyles. We are seeing a scattering of the population to the regions and the outlying areas of major cities.
As a nation of sun, sea and sand lovers, our most renowned coastal areas were the first to benefit. But as we explore in this year’s report, the ‘beach first’ mentality is shifting as many buyers find better value for money in Australia’s inland regions, including wine country.
In addition to location changes, we’re also seeing a redesign of the ‘ideal’ home.
As SJB’s award-winning architect Adam Haddow discusses in our report, the universal desire for open plan living — popularised in the 1990s — is changing as homeowners seek to create more flexible, separate zones using sliding doors, screens and partitions to enable privacy.
Looking forward, I’ve been through at least six market corrections in the last 40 years and this is certainly one of the fastest, with values down 10-15% in many areas of the East Coast. The unusual pace of this correction is directly related to the pace of official interest rate rises. But home loan rates are still well below the historical average of 7%-plus.
I don’t foresee a huge rush of buyers coming in before prices rebound but the window of opportunity won’t last forever.
Smart money certainly loves uncertain times. Think of the ‘early adopters’ who left the big cities for the regions in 2020 and caught the massive wave of capital growth that ensued.
With that in mind, I suggest you have a think about what opportunities there are for you in the market right now and ahead in 2023.