It seems that everybody has been making predictions for our housing markets for 2021 and they’re all extremely positive.
While on the one hand I love to hear this, on the other hand I’m always concerned when everybody thinks the market is going to perform in a particular way as we have seen how wrong consensus opinion has been over the last few years.
Having said that, I agree that we’re at the beginning of a new property cycle and all the pieces of the puzzle are falling into place do you have a number of great years ahead for many of our property markets.
So let’s have a look at 5 property trends that I think will occur in 2021.
1. Property demand from home buyers is going to continue to be strong.
One of the leading indicators I watch carefully is finance housing approvals, and these are at record levels suggesting that we will have strong demand from owner occupiers and investors in the first half of this year.
Despite the “recession we made ourselves have”, rising unemployment and many small businesses facing challenges, interest in buying residential property has skyrocketed.
This has come particularly from owner occupiers who have amassed household savings at levels not seen since the mid 1970s, and this is in part because they have not been able to spend their money on vacations or even local entertainment as they normally would.
Now, with borrowing costs lower than they ever have been, the reassurance that interest rates won’t rise for at least 3 years and increasing confidence that we’ve got this virus thing under control, it is likely that buyer demand will remain strong throughout the year.
In fact, this is a self-fulfilling prophecy…
As property values increase and the media reports more positively about our property markets, FOMO (fear of missing out) will once again kick in and more buyers will be keen to get in the market before it prices them out.
2. Investors will squeeze out first home buyers
While currently there are many first-time buyers (FHB’s) in the market, buoyed by the many incentives being offered to them, I can see demand from first homebuyers fading as property values rise from increasing competition as investors re-enter the market.
You see…typically investors compete for similar properties to FHB’s.
Of course over the last few years, investor lending has been low, but with historically low interest rates and the prospect of easing lending restrictions, it is likely that investors will re-enter the market with a vengeance.
At the same time the federal government’s HomeBuilder scheme will disappear in March.
3. Property Prices will continue to rise
While many factors affect property values, the main drivers of property price growth are consumer confidence, low interest rates, economic growth and a favourable supply and demand ratio.
As always, there are multiple real estate markets around Australia, but in general property values should increase strongly throughout 2021.
However certain segments of the market will still continue to suffer, in particular in the city apartment towers and accommodation around universities. It is unlikely the segments of the market will pick up for some time and the value of these apartments is likely to continue to fall as there just won’t be buyers for secondary properties.
At the same time some rental market will remain challenged. In particular the inner-city apartment markets which are reliant on students, tourists (AirBNB) and overseas arrivals.
4. People will pay a premium to be in the right neighbourhood
If Coronavirus taught us anything, it was the importance of living in the right type of property in the right neighbourhood.
In our new “Covid Normal” world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes’ reach.
Residents of these neighbourhoods have now come to appreciate the ability to be out and about on the street socialising, supporting local businesses, being involved with local schools, enjoying local parks.
5. We will not fall off the fiscal cliff in March
Some commentators are concerned that we will fall off the fiscal cliff when JobKeeper and the mortgage deferral system end in March.
I can’t see the government allowing this to happen after having put so much time effort and money into “building a bridge to get us across the other side” as Prime Minister Scott Morrison promised.
At worst, the fiscal cliff will be a little step down to the new normal.
In fact APRA (the Australian Prudential Regulatory Authority) released data showing loan deferrals plummeted from 493,440 in June to 169,677 in November – a 66 per cent reduction.
As a percentage the share of total mortgages deferred plunged from a peak of 11% in May to just 2.8% in November.
The bottom line
As I mentioned in the beginning, all the pieces of the property puzzle are falling into place for strong housing markets for the next couple of years.
Australia’s economy is recovering faster than most expected, unemployment is falling, jobs are being created, consumer and business confidence is rising and there are more buyers out there than there are good properties for sale.
2021 is going to be a great year for our housing markets.