Despite dire predictions of an Australian property market bust in 2020, due to the economic toll of the pandemic, the market has proven to be resilient with strong signs of recovery.
According to CoreLogic’s latest Quarterly Economic Review, released in November 2020, housing market values across the country continued to rise during the quarter, and leading analysts predict the gains will continue well into 2021.
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Many analysts forecasted that COVID-19 would push national dwelling values down 10 to 20% however, the Australian property market defied the odds. With a minor decline of just 1.9% from March through to September, the market moved into recovery in October with values up 0.4%. November brought about a second consecutive monthly rise with house prices growing a further 0.8%.
CoreLogic’s head of residential research Eliza Owen said that in comparison to past housing market slumps, “the current decline through to November seems relatively mild, with dwelling values just 0.7% below the pre-Covid levels.”
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According to the Australian Bureau of Statistics (ABS), the amount of finance secured for the purchase of properties broke previous records, increasing by 14.5%. This uptick was largely stimulated by owner-occupiers and first home buyers taking advantage of low interest rates and monetary and fiscal incentives.
“There are numerous factors which have contributed to the prevention of a larger downturn in dwelling values including the institutional, coordinated response to the pandemic, which have seen low borrowing costs, added incentives for first home buyers and the extension of mortgage repayment deferrals limiting forced sales,” Ms Owen said.
“Money lent to first home buyers saw the fastest growth rate at 35.1% in the year to October, accounting for 22.1% of lending, up from 18.8% in the year prior. Meanwhile, investor mortgage lending increased less than 1% in the same period.”
Leading property analysts anticipate the upswing will likely continue throughout 2021, as long as control of the virus is maintained. Read on to find out more about the market recovery trend state-by-state, and what potential challenges the housing market could face in 2021.
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Market activity in each state
Let’s take a look at how each state performed from the onset of the pandemic through to November:
According to the Corelogic report, both Sydney and regional New South Wales property markets seem to be shrugging off the recession and are showing signs of enjoying an upswing.
In the three months to November, Sydney dwelling prices rose by 0.3%, while regional New South Wales experienced the highest quarterly rises since 2017, up 3.1%.
This positive growth across the New South Wales markets should continue in 2021, however, the report indicates there could be pockets of the market that see declines. For new buyers, demand is growing for detached housing in regional areas and on the outskirts of the metropolitan area.
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While the property market in Melbourne has taken a hard hit, reflected by the 5% decline in housing values since its record peak in March 2020, there have been some indications of a recovery in Victoria.
Unfortunately, current housing stock levels significantly exceed sale activity, which may have a cooling effect on the metropolitan market recovery. The rental market in Melbourne has also been severely affected by the pandemic, and CoreLogic data has found a correlation between larger dwelling value declines and rental declines.
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It’s a good time for sellers in Brisbane. Although median unit prices fell by 8.9%, house prices are at an all-time high with an increase of 0.9% from March to November.
Seventeen out of nineteen Queensland property sub-markets have experienced property growth since the start of the pandemic.
After a lengthy correction period, Perth is now enjoying an upswing with only a minor interruption to activity from the pandemic. In the year to November, Perth dwelling values rose by 0.9%, while unit prices increased 0.1%.
With rental prices up a staggering 8.2% in the year to November, there’s plenty of encouragement for investors.
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Adelaide’s property market managed to avoid the brunt of COVID-19, with the overall dwelling market up 4.1% from March to November. With property prices at a record high, the generally stable market is going from strength-to-strength.
Property values across the nation’s Capital remain unthwarted by the pandemic. Dwelling price growth was 5.2% from March through to November. With price increases at a record high since September 2019, CoreLogic expressed concerns that if this trend is to continue there will be a lack of affordability across the state.
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Once prized for its affordability, Hobart now ranks as the fourth most expensive capital city unit market with a median price of $414,966 in November. Dwelling prices rose by 3.9% over the period, while regional Tasmania saw an increase of 5.8%.
Hobart rental yields declined substantially over the year; however, they still remain the second highest of the capital cities.
Despite housing values remaining 27.4% below the record high in 2014, the Northern Territory performed extremely well during March to November, with the median house price in Darwin increasing 5.8%.
Rental yields have remained stable and were at 6% in November, which was the highest of all the capitals. It’s good news for investors looking for a cash flow positive property.
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Potential challenges for new homeowners or refinancers this year
While house prices are projected to continue on the upward trend in 2021, there are a variety of market influences you’ll need to watch carefully.
“[The property market] will be tempered by things like whether there’s another spike in COVID-19 cases, how quickly we see the distribution of a vaccine, how trade relations play out in China, and how quickly we can get people back to work,” Ms Owen said.
For the metropolitan Melbourne and Sydney markets, the issue of an immigration collapse is another factor to consider. Similarly, the decline of the rental market in these areas due to the lack of international students also poses a threat.
Despite the various housing markets posting some excellent gains during the pandemic, the inner-city unit markets have suffered across this period, facing a decline of 0.6%. This has resulted in many investors experiencing difficulties securing tenants.
With a generally positive outlook in place for the Australian property market during 2021, the results from last year show that stable capital city markets and regional dwelling markets, which have outpaced the big cities, offer an attractive choice to investors looking for long term returns.
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Words by Katy Holliday
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