Image source: Domain.com.au
Great news for all those homeowners out there across Australia. According to new data released from CoreLogic, one in four homes in Australia are now worth $1 million or more, making many Australian property owners instant and no doubt unexpected millionaires.
Wind the clock back 24 months and we weren’t singing the same tune. The impacts of COVID-19 were just being realised, as many capital cities in Australia were forced into mandatory lockdowns. There was no shortage of experts predicting the future for the Australian economy and indeed how residential property prices would fare, both positive and negative. According to a report released by KPMG Economics in 2021, property prices in Australia were predicted to experience considerable growth prior to the Covid-19 pandemic taking place at which point this outlook seemed unrealistic.
“The uncertainty associated with the coronavirus saw dwelling prices in most markets fall during 2020, despite the fact that market conditions at the beginning of the year were highly conducive to strong price growth”.
“In the Pre-COVID-19 scenario all of Australia’s capital cities, with the exception of Darwin, we're expected to achieve strong nominal property price growth over the four years of the new decade”[1]
Despite the negative outlook for the Australian economy as the pandemic took hold, housing prices unexpectedly took a dramatic turn surging over 20% in many Australian cities over the past 12 months.
These increases haven’t been seen since the 1980s and have been driven in large part by record-low interest rates. Property buyers agent Rich Harvey told the Sydney Morning Herald “the past two years were the “perfect economic storm” for property owners with homes for sale down by 30 per cent but a big rise in demand simultaneously”.
“Now $1.5 million hardly gets you a house in many places,” he says. “We have seen the housing market value go from $7 trillion to $8 trillion to $9 trillion in a year and a half.” [2]
While those in the property market continue enjoying the ride, those trying to edge their way into homeownership continue to struggle with ever-increasing property prices and massive buyer demand. Modelling conducted by the Greens reports that it will now take 11 years to save a 20 per cent deposit to afford a median-priced house in Sydney for a couple on a median wage.[3]
However, there are signs the housing boom could be nearing its end according to ANZs Senior Economist Felicity Emmett and Adelaide Timbrell who said “House price growth looks likely to peak in November or December 2021 at just above 21%”. “This would be the strongest growth since the late-1980s boom. But a slowdown is in sight, with tighter credit, rising fixed mortgage rates and a large increase in stock on the market combined with decreased affordability all set to dampen price growth in 2022. In 2023, we see prices falling modestly as fixed rates really start to bite.”[4]
To add salt to the wound, the annual rental growth in 2021 is the highest annual figure since 2008. CoreLogic’s Research Director Tim Lawless said “Renters are clearly looking for lower-density housing options, with house rents rising at more than double the pace of unit rents over the past year, however this trend is starting to narrow, with national house and unit rents rising at the same rate over the September quarter (1.9%)”.
“Another factor that may be contributing to rental demand is that more renters are working from home, which could be driving a trend towards smaller rental households as tenants look to maximise their space and working environment during COVID.” [5]
Where to for the property market you ask? If the experts are correct we should see the market cooling down in 2022 with the potential for some areas to experience a minor price correction in 2023.
We have now seen most of the major lenders increase their fixed rates, especially for investment properties with some lenders pushing into the 3 per cent range. If you’re unsure about whether to continue with a variable interest rate or fix your rate instead, now’s the time to have a chat with us.
[1] https://assets.kpmg/content/dam/kpmg/au/pdf/2021/covid-impact-australia-residential-property-market.pdf [2] https://www.smh.com.au/politics/federal/millionaire-nation-one-in-four-australian-homes-now-worth-more-than-1m-20211116-p5999i.html [3] https://greens.org.au/sites/default/files/2019-02/Greens%202019%20Policy%20-%20A%20Home%20For%20All_0.pdf [4] https://www.mpamag.com/au/news/general/heres-when-house-prices-will-fall-anz/317238 [5] https://www.corelogic.com.au/news/australian-rents-increase-fastest-annual-rate-2008
Comments