National house prices could surpass pre-Covid levels in early 2021 as dwelling values hit record highs across 32 regions according to market research and analytics company Corelogic.
As at November, top performers were Brisbane, Adelaide, Hobart and Canberra where prices moved to record highs, with Canberra showing a solid 7 per cent annual growth rate while also having close to double the rental returns of Sydney.
Although housing values are once again rising, it’s important to note that Melbourne housing values remain around 5.4 per cent below their recent high, and Sydney housing values are still 4.8 per cent below their 2017 peak.
So, why has the property market defied the grim 10-30 per cent declines of many property commentators at the onset of the global pandemic?
The fact is housing markets are responding to the stimulus of low mortgage rates and improved sentiment as Australians respond positively to measures announced in the federal budget. These factors are expected to mitigate the risks imposed by higher unemployment and low population growth in 2021.
The cost of borrowing money is one of the most important factors influencing property values. Over 2020, the RBA has reduced the official cash rate target (which influences lending rates) by 65 basis points, to 0.1 per cent. In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record low mortgage rates. In March, the federal government introduced an economic stimulus package valued at more than $80 billion dollars. These measures were designed to keep Australians in jobs and businesses in business and ensure the economy bounced back and avoided a recession.
The upside is that the cost of borrowing is lower than it’s ever been, giving households financial breathing room and the ability to pay off their loans sooner. Housing affordability has improved, helped along also by the lower median house prices in most capital cities since late 2017.
So, what’s the outlook for the Australian property markets for the rest of 2020 and into 2021?
All four big banks have now significantly revised their earlier predictions of a bearish 10 per cent decline in house price forecasts.
ANZ economists stated that their earlier view has proven too pessimistic as low rates have trumped factors like elevated unemployment and low population growth. They now predict gains of 9.5 per cent in Brisbane and 12 per cent in Perth in 2021 with Sydney prices expected to rise at about the national average of 8.8 per cent.
NAB says a jump in sentiment based on stimulus measures and record-low interest rates could now see prices grow by 5 per cent next year, followed by further 6 per cent lift in 2022.
Economists at Westpac now predict double digit growth in our capital cities over the next 2 years with a 20 per cent rise in Brisbane property prices over that period – the highest of any capital city. CBA has also upgraded its home price targets for the next six months, citing record low interest rates for its more positive outlook.
So, whilst it might take Sydney and Melbourne some time to return to pre-Covid values, while experiencing poor rental returns and low affordability, places like Adelaide, Brisbane and Canberra are ripe for investment with indications they could see growth of at least 70 – 100 per cent growth for the next 7 – 10 years and provide net rental returns and affordability that are 50 – 100 per cent better than Sydney.