The reopening of Australia’s international borders could have the potential to put further pressure on already-high house prices and even overheat the market entirely, experts warn.
Recent Corelogic data shows Australian house prices jumped a huge 2.1 per cent in February in what was the largest month-on-month increase in 17 years.
The data showed that Sydney’s median house price increased by 4.8 per cent over the last three months while Melbourne’s median house price rose by 4.2 per cent.
AMP Capital chief economist Shane Oliver told Domain Group that a careful and slow and gradual reopening of international borders is needed to ensure a sudden spike in housing demand doesn’t send house prices skyrocketing even further.
He points out that rather than allow immigration to suddenly jump back to what it was before, by gradually phasing back its return, the property market would be able to adjust without becoming even more overheated.
“If we were to allow a return to normal immigration levels then you’re suddenly doubling demographic demand again at a time when the property market is still hot from low interest rates, then that could cause a real problem in terms of adding pressure on prices and worsening affordability,” he said.
The migration influx would also come at a time when the property market is already experiencing strong demand thanks to a palpable change in market sentiment which has translated into strong buyer activity at a time when there isn’t much good stock on the market.
According to property investment expert Michael Yardney, there is already a “perfect storm” of factors suggesting that 2021 will be a great year for property investors:
Consumer confidence has been gradually improving, as has business confidence
COVID numbers are very low and the prospects the success of our vaccination program is excellent,
Our economy is improving faster than many expected and likely to grow strongly in 2021-22
Auction clearance rates remain consistently strong, not just in the two big auction capital of Melbourne and Sydney but around Australia.
While more buyers and sellers are in the market and transaction numbers have increased considerably, the lack of good quality properties for sale has created a seller’s market, where buyers have little choice and are pushing up values of “A grade” homes and investment grade properties.
At the same time, the banks are keen to write new business – another positive for our housing markets.
Bank loan deferrals have been falling – there’s no chance of an avalanche of forced mortgagee sales as many were worried about last year.
The “guarantee” by the RBA of interest rates remaining low for at least 3 years is giving home buyers and investors confidence to commit to purchasing properties
Moving forward further jobs creation, consumer confidence and business confidence (leading to spending and employment) will underpin our housing markets.
When will migration levels return to pre-covid?
According to the Centre for Population, it could be three years before net overseas migration returns to pre-pandemic levels.
In the last full financial year before the pandemic hit, Australia’s net overseas migration was 239,7000.
It fell to 154,100 in the 2020-21 financial year, and is forecast to drop to -71,600 this financial year and to -21,000 in 2021-22, before returning to positive growth of 95,900 in 2022-23 and 201,100 in 2023-24.
The National Housing Finance and Investment Corporation (NHFIC) has warned that housing affordability could worsen from 2023, particularly if supply doesn’t respond to demand when it recovers on the back of international borders reopening.
So what will happen to our property markets if borders don’t open?
Economist Saul Eslake recently told The Sydney Morning Herald that recent gains in the housing boon are unlikely to be undone.
“I would say the rise in house prices is probably sustainable,” he said.
“Indeed, we could see further gains in many regional cities as people adapt to the opportunities created by the more widespread acceptance – at least for white-collar occupations – of working from home.
“Much of the demand is coming from first-time buyers, who appear to perceive an opportunity to get into the housing market without facing the competition from cashed-up immigrants or negatively geared domestic investors, which has ‘squeezed’ them out for most of the preceding 30 years.”
But Westpac warns that prolonged border closures could hurt house prices from 2023.
“If borders remain closed for longer or migration inflows are slow to restart that could lead to a market-wide physical oversupply of dwellings by 2022,” the bank said.
“How that may influence market conditions and price growth is unclear.”