It’s always nice to start with some good news, and the latest Core Logic data shows national home values increased by 0.9% during January, to a record high above their 2017 peak.
Breaking down the statistics
However, across the country, each state’s capital city tells its own story. While Darwin property prices rose by a whopping 2.3% in the quarter (11.4% for the year), Melbourne lagged behind, only posting a rise of 0.4% (-2.1% for the year). Yet despite this, Darwin’s prices are still down by about 20% from their 2014 peak, whereas Melbourne prices are close to their all-time highs.
Since lockdown ended in October last year, real estate agents report strong demand for property with limited supply. Overall, houses are in greater demand than units, and nationally house prices are up by 3.5%, while units are unchanged.
And people are again borrowing to buy property.
· Home loans increased to a record high of $26bn in December, with the number of first home buyers up by 9.3% in December and 56% over the year.
· Construction loans also grew, increasing by 17% in December and doubling since the Home Builders Grant was introduced in June.
A side effect of this is a shortage of properties for sale, with homeowners preferring to upgrade their property and collect some ‘free’ Government money, rather than go to the expense and trouble of moving.
Back on track
According to the Chairman of the Reserve Bank, economic recovery is occurring faster than expected and he believes GDP will recover to pre-COVID-19 levels by the middle of this year. He also predicts interest rates will remain low until 2024 and it’s these bullish statements which are fuelling demand and tempting people to invest in property.
The consensus in the community is that Melbourne house prices will increase. These low interest rates are encouraging people to hold on to their asset rather than sell it because they are earning virtually nothing if the money is sitting in the bank. And together with the improving economy, Federal and State government incentives and a lack of safe alternative investment opportunities, property investment looks quite attractive! In fact, we’re seeing auction clearance rates at around 80%.
The only grey cloud on the property horizon is the lack of population growth. But this isn’t expected to have an impact until later this year or even next year, given the current strong pent-up demand.
What about property supply?
Agents are complaining about a lack of housing stock to sell, and they are probably right. The number of available properties on the market is down 28% from the same time last year and this has certainly helped fuel property prices.
There are many reasons why people sell property, but agents are now seeing a new reason – I call it the COVID effect…
Since lockdown, people have been reassessing their lives and their lifestyles – whether its working from home or where they live. With remote working or even early retirement on the horizon, some people are selling up in Melbourne to move to either the country or coastal suburbs, the Sunshine Coast or northern NSW.
Will it last?
Well, real estate agents are reporting enquiries and appraisal requests are about the same as this time last year, with a few doing more market appraisals than usual. They explain this as a catch-up from last year.
Market appraisals are a lead indicator of vendor intention, as a property appraisal usually leads to a sale. However, it appears property owners aren’t rushing to sell into this market, so we don’t expect a significant increase in property supply in the short term.
In addition, stronger prices and limited supply may not be translated into the CBD apartment market. The reduced number of overseas students and tourists have left many inner-city apartment owners without tenants and forced to pay large outgoings. Vacancy rates are around 30% and new tenants are simply moving from an existing lease to find lower rent. Although the prices for apartments so far appear to be steady, city real estate agents expect some forced selling into weak demand, which may translate into price declines.
What happens when JobKeeper ends in March?
The end of JobKeeper isn’t expected to impact residential property. While some business will close, it shouldn’t come as a surprise to employees that the business is failing.
The consensus among real estate agents I’ve spoken to is that Melbourne house prices should increase by an average of about 5%+ this year. This of course assumes no new lockdowns, continuing low interest rates and the successful rollout of the COVID vaccine.
We’re watching carefully to see how the story unfolds…
Robert Allanadale, Director