2021 is shaping up to be a bumper year for property according to realestate.com.au Chief Economist, Nerida Conisbee, who expects the recent momentum to accelerate in the coming months.
Releasing the REA Insights Property Outlook Report 2021, Ms Conisbee said the combination of improved economic conditions, record low interest rates and the rollout of the COVID-19 vaccine all point to a housing boom.
“2021 is looking like a very strong year for property. This means lots of price growth, high levels of lending activity, and very different conditions to what was predicted by many early on in the pandemic,” she said.
Record levels of stimulus, the ability to work from home, and soaring iron ore prices all played a role in shaping the housing market last year. Ms Conisbee says those trends will largely continue in 2021 – and while there will no doubt be plenty of winners in the year ahead, some will miss out.
First home buyer activity to fade as investors return
First home buyer activity skyrocketed last year as government incentives, low interest rates and the HomeBuilder scheme helped people enter the market sooner. To put it into perspective, first home buyer enquiries on realestate.com.au jumped 62% in 2020, compared to a 5% decline for investor enquiries.
“First home buyers tend to be more active in slower markets when they can take their time, so it’s no surprise that the last time we saw such high levels of activity from this buyer group was during the Global Financial Crisis,” said Ms Conisbee.
“Investors and first home buyers frequently target the same sorts of properties at similar price points, so fewer investors meant conditions were less competitive,” she added.
But that’s unlikely to continue.
“Prices are moving quickly, investors are coming back and any incentives available to first-home buyers are likely to be eased,” she said.
Positive economic and property market data saw investor enquiry activity on realestate.com.au rebound in late 2020, and Ms Conisbee expects that will extend into 2021.
“Importantly, larger markets such as Melbourne and Sydney are no longer seeing declines in activity,” she said.
“The areas seeing the biggest jump have been the NSW Hunter Valley and Southern Highlands, further indicating the rise of outlying regional areas to capital cities.”
Strength to continue in regional areas
Regional areas were the big winners of COVID-19, as flexible working arrangements allowed people to move away from the capital cities.
Ms Conisbee doesn’t expect that trend to let up any time soon.
“While views per listing on realestate.com.au jumped 16% in capital cities during the second half of 2020, the increase in regional Australia was 44%,” she said.
“We continue to see a trend for regional property in search activity on realestate.com.au, and price growth has been far higher in regional areas compared to capital cities,” she said.
As more people return to the office, areas on the outskirts of capital cities may see greater demand.
“We’re starting to see this trend show up in changes to views per listing on a suburb basis – at the end of 2020, we saw a big increase in realestate.com.au search activity on the Mornington Peninsula,” she said.
Meantime, surging iron ore prices boosted activity in remote parts of mining-driven states like Western Australia and Queensland, which will remain dependent on the commodity cycle.
Luxury markets to set new records
A surprising trend seen during 2020 – and one that did not occur during the GFC or the early 1990s recession – was a surge in the luxury property market.
The Property Outlook Report showed that towards the end of 2020, views per listing on realestate.com.au for homes priced over $10 million jumped by 150%.
More than half of the Australian suburbs with a median price over $3 million recorded double digit price growth.
“Most striking, the number of $3 million plus suburbs doubled during the pandemic,” said Ms Conisbee.
“In 2021, it is possible that the list of $3 million plus suburbs will again double, primarily because much stronger conditions are expected for the residential market.”
What it means for home buyers
The latest lending data by the Australian Bureau of Statistics shows the number of new loans issued have surged over the past six months, as low interest rates and government incentives give buyers the confidence to borrow.
Sales volumes are already much higher than they were a year ago, with buyer demand only expected to grow as listing volumes remain low and the FOMO (fear of missing out) factor kicks in.
If you’re one of those buyers looking to get into the market or planning to purchase your next property you should expect to see extra competition in the market. To give yourself the best chance it’s well worth getting organised early.
Crunch the numbers
Work out how much you can borrow based on your circumstances. An online mortgage calculator is a good place to start. There are calculators to help you work out your borrowing capacity, mortgage repayments and stamp duty.
If you already own a property, you may be able to unlock equity in your home to buy another home by refinancing your loan.
Once you have a base estimate of how much you can afford, you should talk to a mortgage broker.
A Smartline Adviser has the ability to compare different home loan providers to ensure you’re getting the best deal.
Some risks remain
Overall, the outlook is positive for property, however, Ms Conisbee said challenges do remain, particularly around CBD markets.
“Very few people have returned to the office; students are yet to make in-person return to universities; and visitation levels remain low,” she said.
“In 2021, CBDs will remain our most challenged residential markets, particularly in Melbourne.” She added.
The closure of international borders will also continue to affect new development and rents.
“While a vaccine will likely open international borders sometime in 2021, and overseas migration can be ramped up or down from that point forward, the overall impact long term on housing is still unknown.”
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.