How times change…

Early last year, after we first became aware of the pandemic, many commentators were forecasting a very gloomy outlook for the property market. Today, the property market feels very different.

While property did experience a fall in the months following the onset of the pandemic, unlike previous market cycles where (on average) the peak to trough has generally been represented by a period of 18 months, this cycle was significantly shorter at around 6 months.

Monthly Change in Dwelling Values Combined Capitals v Combined Regionals

So why such a significant shift?

There are many contributing reasons.

The pandemic

Property markets are significantly affected by sentiment and the pandemic created great panic as to life in general together with our future financial stability. However, as Australia gained control of this health issue (in a relative sense), confidence improved in the property market too.

Mortgage interest rates

Monetary policy has been utilised to stimulate the economy through the reduction of official interest rates. As a result mortgage interest rates are now at all time historical lows, increasing mortgage affordability.

Government incentives

Many incentives have been introduced to stimulate the economy particularly around the construction of new dwellings and the entry of first home buyers to the market.

Economic conditions

While an end is not necessarily in sight for the pandemic, there is confidence growing that Australia is getting on top of things. As a result, confidence is returning to the economy and we are starting to see the first signs of falling unemployment and improved consumer confidence.

Low supply constraints

With confidence in the market the demand for property has increased, however the number of owners of existing stock and the development of new stock have not proportionally increased. As at the end of February the number of advertised listings was 25.3%1 below that in 2020.

What does this mean for the outlook of property?

The momentum is expected to continue.

While a number of government incentives have or will come to an end, other contributing factors look set to continue at least for the short term, including the historically low interest rate environment.

Accordingly, one of the major banks is forecasting that Australia is on the cusp of a housing boom, forecasting house price rises of 16% and units of 9% over the next two years2.

Reports by other economists suggest price increases, however at a slightly less rate of around 10% in a number of some capital cities3 – healthy nonetheless.

The FOMO effect

With these market forecasts it is little wonder that many are feeling a fear of missing out.

It’s all in the maths – when house prices increase so does the need for everything else: the deposit, ongoing loan repayments, government fees and other associated fees. Therefore there could be advantages in getting into the market earlier rather than later.

In reverse, if you are looking to downgrade, staying in the market could be advantageous.