What’s ahead for our property markets?
Well, it’s hard to make predictions, especially about the future.
And it’s even harder to predict the endpoint of a moving target.
Yet there is a palpable change in property sentiment happening and a number of ‘game changers’ have altered my view on what's ahead for property in 2021 and 2022.
Earlier this year there were a number of dire predictions suggesting property values would plummet. But now, most of the pessimists have changed their minds and backtracked on their forecasts.
Australia survived the coronavirus better than many countries and, despite a recession, rising unemployment, and Melbourne’s severe prolonged lockdowns, the property markets have remained resilient.
Why didn’t the property markets fall off that cliff?
While many property pessimists predicted the worst for our housing markets, back in March, I suggested that
“A grade” properties wouldn’t drop much in value during this pandemic – maybe 5%. I was correct.
“B grade” properties – not investment-grade properties – would drop around 5-10%, and that was pretty right also.
“C grade” properties wouldn’t be moving at all. And, right now, we’re seeing a fallout in off-the-plan market and inner city apartment market.
Clearly only certain segments of the housing market suffered.
You see…interest rates are at historic lows making it easier for most Australians to keep up their mortgage payments, and those homeowners and investors who were struggling financially due to Covid-19 have been given a lifeline and have been able to defer their loan repayments.
The fact that more than 800,000 people have deferred repayments during the Coronavirus pandemic led to concerns about an “economic cliff” in September when the original loan deferral period was meant to end.
Well that didn’t happen as the majority of borrowers were already repaying their debts while others were given an extension to loan holiday.
But don’t worry about the banks withdrawing their support any time soon.
Think about it… the banks don’t want to take over your home as mortgagee in possession. They’re keen to help their customers through these challenging times.
It’s obviously not in anyone’s interest to see a large number of mortgagee sales and house prices tumbling.
Fact is, there are too many vested interests in our property markets to allow them to collapse.
Our banking sector is underpinned by residential real estate loans, so the banks are not going to pull out the rug from under their customers.
At the same time the government understands the importance of consumer confidence in hauling us out of this recession and into recovery.
They also recognise that a recovery in our real estate markets will be enormously helpful as the wealth effect of rising house prices increases confidence and consumer spending.
At the same time, there is pent-up demand from both home buyers and sellers, who are just waiting for someone to ring a bell and tell them it’s all over; which means as confidence gradually returns our property market will rebound.
This will be helped by historically low interest rates and the various government stimulus packages aimed to revive our economy.
We’re setting ourselves up for a perfect storm in property
While I was always positive that our property markets were going to pick up, recently three major factors have underpinned the property markets and will contribute to a perfect storm that will have property markets performing strongly in 2021 and 2022.
The first was the announcement of sweeping changes to remove overly restrictive lending rules. This will give more people access to easier credit, enabling them to borrow more and get into the market.
The other big gamechanger was the budget. It’s been calibrated to create jobs and promote consumer confidence, which will encourage buying and investing.
Then more recently the RBA stated it will further lower interest rates and do everything it can to support jobs, businesses and our economic recovery.
Sure there are economic headwinds that will affect us and there will be a few challenges in the first quarter of 2021 as a number of small businesses close down.
But there will be a ‘perfect storm’ leading to a period of strong property price growth in the second half of 2021 and into 2022 with a confluence of the following:-
Federal Government spending, initiatives and infrastructure projects
State Government spending and infrastructure initiatives
Historically low interest rates making borrowing as cheap as it has ever been and therefore holding investments or taking out a home loan very affordable
The security that interest rates will remain low for a number of years will encourage people to borrow
Easing of credit approval criteria could allow many people to borrow considerably more than they could before.
A return of international demand for Australian property
A return of immigration and students to Australia is also possible
A window of opportunity
Thinking strategically, this means that there will be a window of opportunity between now and the second half of 2021 for savvy investors to really amplify their wealth position.
No one is going to ring a bell when the market bottoms, but in certain segments of Australia’s capital city property markets we are already passed the bottom and property values are slowly but steadily increasing.
However, the average homeowner or investor won’t hop back into the market until there is more certainty.
They are waiting to hear that property values have increased, auction clearance rates are higher and the Australian economy is back on its feet.
This means those who take action and secure their next home or investment property now will be purchasing in an uncertain market where they’re more likely to have the upper hand in terms of price negotiations.
They will also be competing against fewer other buyers, which is the ideal position to be in.
Why does this window close in the middle of next year?
Well, by then, a whole group of new buyers will be entering the property market, buoyed by a strengthening economy, growing employment and renewed confidence in the way Australia is heading.
This will serve to increase competition for property which will potentially drive up prices and most importantly, absorb quality stock, making it harder for you to secure a solid investment.
This is likely to happen for two main reasons:
Confidence. By then, the economic picture will be clearer, the recession will have turned the corner and overall consumer confidence will begin to return as we claw our way back from this financially devastating pandemic.
Competition. Finance will be more freely available as a result of the changes I mentioned above, and those buyers who were previously restricted from borrowing (due to them not meeting the banks’ criteria, and/or temporarily losing or dropping their income during the pandemic) will be back in the market.
We’re in for a 2-tier property market
Now don’t get me wrong. Not all property markets will rebound strongly next year.
Properties located in the inner and middle ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs.
The reason being, Covid19 has adversely affected low income earners to a greater extent than middle and high income earners who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.
High-rise apartment towers in our CBD’s which were already suffering from the adverse publicity of structural problems prior to Covid19, will now become the slums of the future as they are shunned by home owners and investors.
And like after every downturn, there will be a flight to quality properties and an increased emphasis on liveability.
As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal”, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.
To many, liveability will mean a combination of:
Proximity – to things like parks, shops, amenities and good schools;
Mobility – access to good public transport (even though this may be less important moving forward) or a good road system; and
Access to jobs.
The bottom line is that for those with a secure job and who have their finances under control, now could be the best opportunity in a decade to set themselves up for the opportunities that will present themselves as our property market head into a perfect storm with a confluence of growth drives in 2021-22.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.
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