Housing is set to be one of the hot topics for 2021 as the economy bounces back from its pandemic-induced recession. Record low interest rates, government grants and the impending roll-out of the COVID-19 vaccine has given homeowners and first home buyers the confidence to borrow, pushing national home values to a record high in January.1

But despite a stronger outlook, some uncertainties remain. Here’s what to watch in the year ahead.

Buyers vs. sellers

In its first board meeting of the year, the RBA left interest rates unchanged at a record low of 0.1% and says they’ll remain there until at least 2024.

REA Group executive manager of economic research, Cameron Kusher says that will likely boost competition among buyers.

“Low borrowing costs are likely to see strong demand for property with plenty of competition for stock, with the current lack of stock for sale likely leading to higher prices.”

Listing volumes plummeted during COVID-19 as uncertainty caused sellers to hold off. But Mr Kusher expects to see a correction in the months ahead.

“The combination of strong demand, rising prices and the lowest borrowing costs on record is expected to result in vendors feeling more comfortable listing their properties.”

Regions vs. cities

The shift to working from home during the pandemic has caused a regional property boom, with most regions outpacing their major capital city.2

Regions along Australia’s beautiful coastline, such as Newcastle in NSW are popular with movers. Source: Supplied

The latest data on internal migration shows people moved out of the cities in record numbers during the September quarter to take advantage of more affordable housing and lifestyle changes.3

The question is, will the trend continue?

“Employees are rapidly coming back into the office as restrictions ease and the economy rebounds; however, most companies are looking at radically different workplaces to before the pandemic,” said REA Chief Economist Nerida Conisbee.

It may also depend on where you live. States and territories with the highest case numbers lost more people to the regions, with Greater Melbourne leading the city exodus.

“It is likely that by the March quarter of 2021, conditions are going to look a lot more positive for Victoria while regional Australia will continue to see growth,” she said.

Rental conditions

With international travel remaining off limits for the foreseeable future, rental conditions have weakened in markets reliant on overseas tourists and international students, such as inner-city apartments. However, there have been plenty of areas where demand for rentals has increased.

“These areas have generally been outer and near capital city lifestyle markets,” said Cameron Kusher.

He says, overall, border restrictions will continue to play a role in the months ahead.

“With movement severely diminished this year I would expect the first quarter of 2021 to be relatively weak in terms of rental growth but thereafter I think rents will grow albeit the profile of the areas in which rents are increasing is likely to be away from the inner-city unit markets.”

Government grants

Government grants like HomeBuilder have been credited for a surge in residential construction, with building approvals for new houses hitting a record high in December,4 as buyers rushed to secure the full $25,000 grant before it was reduced at the end of the year.

Lending to first home buyers also reached a decade high.5

“The HomeBuilder stimulus has been extremely effective in encouraging first-home buyers to purchase due to the generous grant, but it has also helped stimulate new building and keeping tradespeople busy,” said Cameron Kusher.

The scheme was extended by a further three months until the end of March, and no doubt many tradespeople and developers will be hoping there is a further extension.

“Any further extension is likely to be based on several factors including how the economy is faring, vaccine rollout and the state of international borders,” he said.

The rollback in stimulus

Since the onset of COVID, state and federal governments and the banks have unleashed unprecedented levels of stimulus to limit the economic downturn. Nearly a year on, the end date is looming.

The Australian Banking Association said that as of November 2020, the number of deferred home and business loans had fallen by 70 per cent from the June peak,6 with most customers having restarted their repayments.

Cameron Kusher says what remains less clear is how many mortgages are being propped up by government stimulus, like JobKeeper and JobSeeker, which are due to expire at the end of March.

“Repayment holidays have dropped but there could be an increase in households struggling to repay their mortgage with support packages being phased out,’ he said.

“It’s possible we could see an increase in households struggling to repay their mortgage. Undoubtedly the situation could have been much worse without the federal government support measures.”

SOURCES: 1https://www.corelogic.com.au/news/australian-housing-values-reach-new-record-high-as-values-continue-to-rise-across, 2https://www.corelogic.com.au/news/australian-housing-values-reach-new-record-high-as-values-continue-to-rise-across, 3https://www.abs.gov.au/statistics/people/population/regional-internal-migration-estimates-provisional/latest-release, 4https://www.abs.gov.au/media-centre/media-releases/private-house-approvals-reach-record-high-december, 5https://www.abs.gov.au/media-centre/media-releases/record-housing-loan-commitments-continue-december, 6 https://www.ausbanking.org.au/majority-of-deferred-loans-back-on-track/

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