Why hasn’t the Australian property market crashed?
As the year we’d all like to forget comes to a close, 2020 has certainly held some surprises when it comes to the residential property market. Listings have levelled and buyer demand is recovering, along with seller confidence. Statistics certainly aren’t revealing what many forecasters told us would happen in a sharp market downturn, with buckets of opportunity for buyers. If anything, the cautious optimism out there has seen a further increase in activity in the last quarter, with a new “COVID normal” adopted as sellers and buyers realise that we all still need somewhere to live, and there will constantly be movement in the property market. We continue to buy our first homes, downsize, upgrade, invest and move according to life changes.
On the ground, we are finding buyer numbers have certainly increased in the last 3 months, with heightened competition and auction clearance rates that are already eclipsing those of 2019. We are also buying increasingly off-market, as vendors pull back from full marketing campaign costs, and seek to sell “quietly”. Demand in the traditionally home-owner suburbs we search in remains steady, with most good-value properties selling within the first 30 days of coming to market.
So what has changed the latter half of this year to instil confidence and fuel demand here in Sydney?
After prices started drifting lower, and not surprisingly, in late April and May (with a small peak-to-trough correction of 2.8% in metro markets and 1.7% across all metro and non-metro regions), what was clear was that the Australian housing rebound commenced back in September in six of our eight capital cities. This picked up momentum in October with all cities except Melbourne realising gains. Naturally, the lockdown impacted Melbourne, however it’s certainly picked up with the latest auction clearance rates a clear indicator of pent up demand now meeting and exceeding supply.
So, back to the statistics. Take a look at the latest rise in Dwelling Values released by Core Logic. What’s clear is the gentle upwards trend across all capital cities. Sentiment is a huge driver of our market, and once confidence returns, buyers and sellers are far more likely to want to engage. Historically low interest rates are also assisting, along with government incentives to entice first home buyers back into the market.
So why has property remained a fairly safe haven?
Firstly, residential property isn’t a rapid transaction, unlike shares or other investment vehicles. The sale and purchase of propery takes place over the span of weeks and months, not minutes like the ASX. This makes it a more resilient investment vehicle, and history demonstrates this.
Secondly, we all need somewhere to shelter, and so, unlike other commodities that can be traded, property is seen as a more essential investment, whether it be for home or otherwise. We are more willing to take risks on an asset that is traditionally deemed safe by society and our financial institutions, ride out the long term (and potentially experience losses) and take advantage of the many taxation benefits (capital gains tax free homes, negative gearing etc).
Core Logic have also stated that the cost of borrowing money has probably been one of the most important factors influencing property values this year. Over 2020, the RBA have slashed the official cash rate target by 65 basis points, to a record low 0.1%. In a bid to stimulate economic activity, this reduced rate has lowered bank funding costs, leading to record low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8% increase in property values over the following two years. For more detail read their latest report here
So where to from here? For those in the market, I believe the gentle increases in values may well continue into the early months of 2021, as buyer confidence remains strong, with still limited supply in some suburbs. Much will also depend on the outcome of the COVID vaccines currently under trial, as well as further government stimulus and rescue packages to help our economy continue trading and growing. Banks will play a large role, as loan deferral periods come to an end, in working out solutions to ensure home owners can hold onto their assets for longer through any growth stage.
In the meantime, if you are in the market for a property and can’t understand why you keep missing out, or can’t get a handle on prices, or are fearful about paying too much, we’re here to help. As buyers agents, not only do we search everything (both on and off the market) for buyers, but due to our consistency and being “in the trenches” daily we are up to date with what’s really going on. Researching online and interpreting statistics only tells half the story. Contact us today if you require help or simply want to know what a great buyers’ agent can do to make your property buying journey easier.