How did Australia’s property market go from predicted collapse to roaring comeback?
Experts predicted 20% drops. But 12 months after COVID-19, prices are soaring.
Exactly a year ago, things were looking bad for the Australian property market, and everything else. The pandemic was just getting started, with lockdowns, unemployment and the sudden end of the travel of the industry.
For anyone wanting to sell and buy property, open inspections switched to private viewings and auctions went online. House prices began to fall.
"Vendors are anxious, fearful and panicked. Many are bringing auctions forward or cancelling campaigns," Real Estate Buyers Agents Association of Australia Cate Bakos told Finder in March last year.
Real estate agents were forced to cancel open inspections, in some cases even offering remote viewing via phone.
Experts suggested that in the worst-case scenario, Australian property prices could fall by 20%.
But 12 months later the Australian property market is in a completely different position. Defying the worst predictions, property prices are soaring. Auction clearance rates are high. First home buyers are back in a big way.
Property prices did fall. But not by anywhere near as much as they might have. At a national level, Australian property prices only fell from May to September of 2020 before recovering.
Melbourne, having faced the most prolonged lockdowns, saw the biggest drops. According to CoreLogic, the median 3-month average sales price for Melbourne property peaked at $712,000 in December 2019.
This average fell by 8% to $648,875 but has now crept back up $708,000, just short of the pre-COVID-19 peak.
Sydneys' median property price was $889,992 in May last year, according to CoreLogic figures. It fell down to $859,943 in September.
Now that median sits at $895,933 and Westpac economists are predicting a further 10% rise in prices this year.
And property prices are growing in other cities and regional areas too. 2021 is looking to be a very strong year for Australian property prices. But how did we get here? How did the market go from a predicted COVID-collapse to a boom?
There are multiple factors driving prices upward now:
- COVID-19 under control. It's an obvious point but Australia's handling of the pandemic has allowed something like normal life to resume for many of us. The fact that real estate transactions were only briefly interrupted has definitely helped the property market grow.
- Low interest rates. The Reserve Bank lowered the cash rate several times before and during the pandemic. It did this not to raise house prices specifically but to boost spending and encourage economic growth. But it has resulted in historically low interest rates on home loans, making it cheaper for buyers to borrow more money.
- First home buyer policies. Government policies aimed at helping home buyers, such as the First Home Loan Deposit Scheme and HomeBuilder, have given a few first time buyers a boost at a crucial time.
- Recent price falls. The current growth in prices comes off the back of a very uneven period. From 2017 until 2020, prices in cities like Melbourne and Sydney fell, then rose, then fell again as COVID-19 struck. While still ridiculously expensive, prices had room to rise. Even now they're only getting back to previous peaks in some cities.
- Availability of credit. In addition to low interest rates, lenders are a little more flexible now than they were a few years ago. It's a bit easier to get a home loan now than it was in, say, 2018 or 2019, and with government plans to simplify lending rules it could soon get even easier.
In short, COVID-19 and the economic decline that followed, along with government policy, created a situation in which property prices were bound to rise.
But it isn't all a story of growth. For renters in certain parts of the country, notably inner-city Sydney and Melbourne apartments, rents have fallen. This is partly because travel and immigration numbers have plummeted during the pandemic, and partly because renters have flocked to suburbs with more space.
And property investment activity remains low. It's first home buyers currently driving growth. Of course, that might change as property gets more expensive and investors start chasing big gains again.