Australian Property Market 2021
Key Things You Need to Know about the Australian Real Estate Market in 2021
I don’t know about you, but things have been weird for a while now. Mostly that’s due to the headline-grabbing global pandemic that’s been going around. We’re hopefully starting to see a return to normality as we cautiously move into a post-pandemic world… Let me stop now before I jinx anything and get to the point, which is that the real estate market in Australia was also affected by the pandemic and, in this article, I want to take a look at some of the major trends that we are observing in the real estate market in 2021.
According to a CBRE Market Outlook, price growth in the residential market had slowed down to 4% for houses and around 1% for units in 2020 and they predicted that prices would rise more quickly in 2021 (for example, between 7-10% for houses and 0-3% for units in nearby Sydney). With the benefit of hindsight, we can see they correctly predicted price increases but missed the boat by just how much prices would increase!
A recent news headline from The Guardian sums it up, “Australian house prices rose more in July than incomes are rising in a year”. Forecasts of major Australian banks and research companies seem to indicate that we could see increases in residential property prices of more than 20% for houses and 9% for units by the end of 2021. This is also being seen in Newcastle as more people are looking to move to the area from Sydney.
Changes in Property Demand
Demand for residential property remains at high levels and is increasing during 2021. What is interesting though, is that the pandemic has caused a definite shift in our preferences of where we want to live. As working from home becomes more common, and people have an increased appreciation for freedom and fresh air, there is a shift towards people moving to smaller towns and cities, and away from bigger cities where prices have been going crazy in recent years. Increased demand in smaller towns and cities is likely to cause prices to increase at faster rates than they otherwise would have.
There was a slow-down in international migration during the pandemic and this was partly the reason for muted price increases in 2020 for units in inner-city areas where newly arrived immigrants typically find their feet. As migration comes back online in 2021 and beyond, prices of units have started to rise more quickly again as the demand for rental units recovers and this lures investors back to the market.
Supply as a Factor
The constant supply of new housing by property developers, in line with general demand, is necessary to keep real estate markets on an even keel. Changes in demand, particularly the location of demand, is putting a spanner in the works.
The government did try to boost the supply of houses by providing homebuilder grants and it caused a spike in building activity in 2020-2021. Giving prospective homeowners the ability to build houses where they want to live, at least partially addresses potential supply constraints in smaller towns and cities. But the initial spike in construction is slowing down and it remains to be seen if the larger-scale, corporate builders will be responsive to new demand trends. Current predictions are that there might be a modest undersupply looking in 2023.
What does this mean for ordinary people?
What does all this mean for people looking to buy a home? With prices of homes in large cities have become increasingly unaffordable, and coinciding with the new trend of people moving to smaller towns and cities, we are seeing prices in these smaller towns and cities starting to increase at similar rates to large cities. Your chance of getting a good deal in regional markets is decreasing by the day.
Despite rapidly rising prices, demand remains high. An important factor has been the very favourable interest rates on home loans which are expected to remain low for the foreseeable future. The result is that buying a home is becoming less and less affordable for the average Australian. This is unfortunately not likely to change any time soon. To have any chance, you need to get your ducks in a row: Save your money, decrease your debt, be patient, and keep your eye open for deals.
What does this mean for investors?
Investors have to deal with the high and rising prices like everyone else. Although, established investors generally have their hands on more ready money than the average person on the street. You will find investors everywhere, but they do tend to congregate in larger cities. With demand shifting out of large cities, at least in the short term, existing investors might be a bit worried, and new investors might be more hesitant. Who knows what our housing preferences will look like a year, five years, or even ten years from now. That being said, investor activity in smaller markets is likely to pick up as a result.