When coronavirus hit Australia’s shores early in 2020, most property predictors anticipated a dramatic crash that would see Sydney prices plummet.
That didn’t happen, not even close.
While it is true that Australia did experience its first recession in over 28 years; wages are still down, unemployment is up and inner city rents in some pockets are lacklustre, but the market has not fallen off a proverbial cliff.
Some estimations of the national market were forecasting a price drop of up to 30 per cent, but according to CoreLogic data, Australian home values rose 3.1 per cent over the 12 month to the end of November. Sydney’s dwelling values were up 3.7 per cent over the same period.
According to CoreLogic’s head of research, Tim Lawless, if the current trend persists then their monthly National Home Value Index will show prices surpassing pre-COVID levels in “early 2021”.
While other global cities are suffering through unprecedented residential real estate recessions brought on by COVID-19, Sydney’s property market remains healthy in comparison.
This is why, according to leading industry figures.
Low-cost of borrowing
“In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8 per cent increase in property values over the following two years,” said Eliza Owen, CoreLogic’s head of Australian research.
Ms Owen added that historically, even in the face of an economic downturn, Australians with a secure income are more inclined to borrow money and buy property.
“In fact, it is not uncommon for housing markets to increase in value during negative economic shocks, or periods of rising unemployment. This is because the monetary response to rising unemployment and falling consumption, is often to lower the price of debt,” she said.
Sydney’s housing market has remained strong and accessible through the pandemic.
Because lenders were happy to hit the pause button on home loans during the worst of the pandemic, Australia’s property markets (specifically our largest city) have not been flooded with forced sales. This, in turn, means supply remains low.
“Those that did not want to sell amid economic uncertainty due to an inability to repay their mortgage, did not have to. This may have contributed to very low levels of stock throughout 2020, which only reduced further amid stage 2 restrictions from March. The low level of stock on market likely helped to insulate dwelling values during this time,” Ms Owen added.
A different kind of downturn
Coronavirus impacted some sectors of the economy more than others and this may have insulated parts of the housing market. Workers across hospitality, tourism and the arts have been most affected when it comes to income, however these employees are statistically more likely to rent than be owner-occupiers.
“The decline of employment in these sectors likely contributed to severe pockets of rental income decline, but the investor servicing debt may be able to hold on to the asset while it is temporarily vacant. It is worth noting that prolonged declines in rental markets do ultimately pose risk to values,” Ms Owen said.
Big spending state budget
In November, the NSW government announced it would move to change stamp duty, which would be its biggest change to tax legislation in decades. It wants to give home buyers the choice to opt out of stamp duty and instead pay a smaller annual property tax.
“The move to reduce transaction costs for home buyers in Victoria and NSW will likely encourage more people to purchase property, which will drive competition and positively impact property prices,” said Nerida Conisbee, realestate.com.au chief economist in a recent REA Insights report.
Aussies have been saving
During COVID, people have had less to spend money on; from expensive overseas holidays to dining out and entertainment. As a result, household saving has shot up to levels not seen since the 1970s. With more cash in the bank, and such low interest rates on savings, it’s only natural that housing will be a beneficiary.
“While people are saving more, safer conditions among well-paid job types is also good news for premium property markets. We are yet to see tough house price conditions emerging in Australia’s most expensive suburbs, with many of them continuing to see price growth through the pandemic,” Ms Conisbee said.
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