Surprisingly, property markets have proven resilient through the pandemic. And there are no signs yet prices will plateau.
Property market review
The world was shocked when the World Health Organisation (WHO) declared the COVID-19 global pandemic at the start of 2020. While there was a lot of speculation, no-one knew how large any pandemic-induced recession would be. COVID’s impact on businesses, households and property prices was also unknown.
The property market did experience a hiatus when social distancing was introduced at open homes and auctions. At certain points, these restrictions saw open homes even banned.
Initial forecasts about the property market were gloomy but it proved to be incredibly resilient by the end of the year. Property prices in many markets rose last financial year by the same magnitude they were expected to fall.
Property data provided by CoreLogic paints the picture. In the 2020/2021 financial year, property prices in most capital cities, except for locked-down Melbourne, rose by between 10 per cent and 20 per cent. Property values have been steadily rising for decades, except for key events such as the Global Financial Crisis of 2008/2009. The Perth and Darwin markets also tend to follow the resources cycle and are more volatile over time than other markets.
|Last quarter (%)||Annual (%)||Median value (K)|
Source: CoreLogic, Hedonic Home Value Index, July 2021
Property price rises were consistent with Australia’s strong economic recovery experienced at the back end of last year. House prices were driven by low interest rates and government support measures such as the First Home Buyers Deposit Scheme.
Property market outlook
Low interest rates should continue to support the property market this year and into 2022. The Reserve Bank of Australia (RBA) has suggested it won’t lift the cash rate until 2023 or 2024. Any timings for a cash rate rise will depend on factors such as inflation, wages growth and the jobs market, as well as vaccination rates.
The property market could be affected by continued lockdowns. And the impact on businesses, jobs and population growth may affect the property market. Slow population growth could also affect demand for property and property prices. The 2021 Intergenerational Report1, forecast Australia’s population to rise from 25.75 million today to 39 million by 2061. Presently, 29.8 per cent of Australia’s population was born overseas, but last year was the slowest pace of population growth since 1916. If this trend continues it could reduce demand for property and slow down price growth.
Any change to regulatory settings to restrict the lending market could also play into the performance of the property market. The Australian Prudential Regulation Authority has previously restricted lending to property investors2. Any similar moves in the future would also dampen demand for property and put a lid on prices.
With that in mind, regional property markets are likely to continue to outperform city markets, but at a slower pace than over the last year. Additionally, we expect capital city prices may only rise at single digit rates this financial year. Overall, however, property markets are forecast to continue trending upwards, notwithstanding unforeseen events.
2“APRA announces plans to remove investor lending benchmark and embed better practices”, 2018, media release, accessed 2/8/21