Manage episode 296925960 series 1537109
Property values across our capital cities have experienced double-digit growth already this year, in all capitals other than one.
And despite the Covid concerns we’re experiencing, there’s plenty more growth to come.
The surge in property value has caused the property bears to go back in their caves and hibernate and our major banks have done an about-face and are now forecasting 20% to 30% rises in property values around Australia this cycle with strong growth continuing for some time.
And the economic Armageddon predicted by some didn’t eventuate and we didn’t fall off the assorted cliffs that were meant to litter our path along the way.
So, in today’s podcast, I’m going to have a chat with Australia’s leading economist, Dr. Andrew Wilson, as we look back on what’s happened to price growth so far and give you some thoughts on what’s ahead.
This year’s property growth and what’s ahead
No one would have predicted the unprecedented record-breaking levels of high house price growth in the first half of 2021.
The outstanding performer so far this year has been the Sydney property market where house values have increased 17.8% this year alone. In fact, Sydney home values have increased 24.2% in the last 12 months.
Sydney apartment values also increased, but not as much - increasing 7.3% in the last six months and 9% in the full year.
Over the six months of 2021 so far:
- Melbourne property values have increased 11.8%
- Brisbane values were up 10.7%
- Adelaide values rose by 10.4%
- Perth values increased by 8.1%
Now it’s important to remember the capital city of values set their previous records in September 2017 and today values are only around 10% higher than previous records.
In other words, the market did but it always does, operate cyclically with periods of flat or no growth and even periods with property values drop.
How FOMO Affects the Markets
The other critical factor, of course, is fear of missing out (FOMO), a self-fulfilling cycle where those yet to buy in are motivated to do so by the prospect of having to pay more to do so at a future date.
None of these factors look likely to change over the rest of 2021, and it’s likely that house prices could rise by another 10% before the end of next year.
Of course, this is just average price growth, and the upper end of our property markets are outperforming cheaper properties, and for the last month, capital cities are outperforming regional Australia which performed strongly during the Covid lockdowns last year.
In due course, the property markets will slow down as affordability becomes an issue for some homebuyers and investors.
Regulation appears to be imminent.
Historically, surging house prices have tended to lead to a deterioration in lending standards and risks to financial stability, giving regulators impetus to tap on the brakes.
The RBA has given fairly strong indications that they won’t use monetary policy to this end, at least not yet, so expectations are instead that they and APRA will look to macroprudential controls such as increased interest rate buffers, and limits on high loan-to-valuation and high debt-to-income ratio lending.
Government stimulus measures will continue to be wound back.
HomeBuilder, a major driving force for the market through the pandemic, has now ended, and smaller state housing incentives may also be retired over the coming months. More broadly, the indirect influence of fiscal latitude will gradually be reduced as governments seek to move their budgets back towards balance.
Low immigration will continue to be a drag.
Restrictions on migration have cut underlying demand for housing by around 100,000 dwellings (nearly 50%) this year, and this is one outage caused by the pandemic that won’t be switched back on overnight.
Even with a vaccinated population, borders will probably be opened gradually with quarantine requirements remaining in place for some or most arrivals. Immigration will recover slowly.
But currently, with the lack of new apartment construction it’s likely we will have a looming undersupply of apartments once our borders are open.
In my chat with Dr. Andrew Wilson as we discuss how despite the doomsayers’ dire predictions our housing markets remained resilient last year, but growth was stifled by lack of consumer sentiment
The markets turned in October 2020 and have gone gangbusters over the first half of 2021
Those who heeded the negative nellies lost out, while home buyers and property investors who took a long term view have already enjoyed significant capital growth.
Listen as we discuss how each state government introduced their own set of temporary measures to stabilise the rental markets, prevent evictions and support tenants in hardship.
Rental vacancies in our big capital city CBD’s spiked due to the lack of overseas students, no overseas tourists using Airbnb and decreased local tourism
While rentals initially fell, vacancy rates, especially for houses are now falling and the rental markets are tightening.
Watch the Property Insiders Video of this session here
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Guest: Dr. Andrew Wilson, chief economist of My Housing Market
Subscribe to my weekly Property Insider video with Dr. Andrew Wilson here- www.PropertyInsiders.info
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Shownotes plus more here: Amazing double-digit growth in property so far this year, with Dr. Andrew Wilson
Some of our favourite quotes from the show:
“When people feel about their jobs, when they feel secure about their financial future and employment, they make big investment decisions like buying homes.” – Michael Yardney
“Our economy over the last year experienced that V-shaped recovery that we all hoped for, but not many of us expected.” – Michael Yardney
“Most successful people fostered accomplishments in their lives by diligently doing things every day, but they also did it by diligently avoiding certain things.” – Michael Yardney
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