John McGrath - Synchronised Growth In Home Values Nationwide
Australia is now in a synchronised price growth phase not seen for more than a decade, with home values in every capital city and most regional areas going up at the same time.
It’s telling that the last time this happened was during the post-GFC recovery in mid-2009 through to early 2010. Now, we’re in the post-COVID recovery but everything is bigger, starting with stimulus that is 5x that of post-GFC and an official cash rate of 0.1% compared to the 3%-range in 2009.
Add to this a significant lack of supply, with advertised listings down 26% year-on-year, and that’s why our national median price rose at its fastest pace in 17 years at 2.1% during February - eclipsing the pace of growth during the post-GFC period.
Vendor discounting was at a record low of 2.6% and auction clearance rates were routinely in the high 70% to low 80% range during February, according to latest CoreLogic data.
It’s clearly a sellers’ market with no signs of slowing down for now. CoreLogic describes the intensity of potential headwinds as “lessened” in recent months. These headwinds included the end of JobKeeper and mortgage deferrals later this month, as well as stalled immigration.
A rising market encourages more and more buyers to participate. Everyone gets excited about the prospect of immediate capital gains by buying into the new growth cycle as early as possible. This is what’s happening now.
The RBA is telling us that interest rates aren’t going to move for at least a few years, so buyers are feeling very confident that they can afford to upgrade their homes and take on bigger loans.
It’s also getting easier to borrow money, with the government actively encouraging banks to lend more freely to quality borrowers, meaning they potentially have bigger budgets to spend on auction day.
This combined with a redirection of travel funds into property is contributing to many instances of incredibly strong prices. Every week, we’re seeing auction reserves smashed by hundreds of thousands of dollars, especially in Sydney where house price growth was the strongest in the nation at 3% during February.
This frenzy of activity is occurring with very little participation from investors, who have been spooked by weaker rents in some areas and little hope of capital growth in 2020.
Now that the property market is booming and the share market is wobbling due to rising bond yields, it’s only a matter of time before investors return to real estate and further amplify demand.
In this current climate, I do think buyers need to take a breath and consider how FOMO is affecting their behaviour and budgets.
Lack of supply is exacerbating FOMO but we will see more listings eventually as confidence in the market increases, so if you’re out there looking today, you should expect more choice soon enough.
Meantime, home owners who are ready to sell should go early in 2021 to take advantage of this tight supply/demand dynamic, as it’s certainly resulting in premium prices for high quality homes.
Covid-inspired trends in the market continue, with especially strong buyer activity in capital city fringe suburbs and regional areas. These parts are benefitting from the inner city switch amongst CBD workers who are relocating away from the city because they can now work from home.
First home buying is still very strong given all the government incentives on offer for young people. Prices have softened in the inner city apartment markets of Sydney and Melbourne, so there are some shrewd buying opportunities for young people who envisage an executive lifestyle long term.
It’s a rare situation being able to ‘buy a bargain’ within a few kilometres of an international city like Sydney or Melbourne. Inner city property typically sells for a premium, not a discount, so the pandemic really has created an incredible opportunity for both first home buyers and investors.
Around the world, inner city living is out of favour right now but this is short term and mainly related to CBD workers relocating to middle/outer suburbs or regional areas because they can work from home.
When we’re all vaccinated and city life returns to normal, buyers and renters will return in droves to take advantage of softer prices and lower asking rents. Remember, inner city living isn’t just about being close to work, it also means easy access to world class restaurants, theatres, entertainment and nightlife so you can bet that demand will rebound strongly once we’ve re-opened properly.
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 (March 8, 2021)
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