Housing Market Forecast 2020 2021
The Corona Virus pandemic certainly dimmed the Australian property market forecast during March and April. But while property prices were flat last month, Australia’s amazing trade surpluses and business reopening might mean better times are ahead in the property market.
As you can see in the housing charts below, home price indexes for Sydney and Melbourne are still up considerably from 12 months previous. Some feel property prices have to fall from those lofty heights.
Yet, listings are few and buyers will have to chase those properties available. With the shutdown ending, and Australia’s lower rates of infections, buyers will likely be out again, aided by record low mortgage rates.
Home Sales Transactions Returning
However, it looks like home transactions are picking up while prices are remaining flat. Australia has managed the Covid 19 risk well and coming out of the shutdown period, home sales might pick up further this summer.
Job losses were strong (hospitality and restaurants) but unemployment reached only 6.2% in April. That’s a paltry number when compare with US numbers of 15%.
Australia’s drop in GDP (-5%), employment drop and plummeting retail activity mirrored all other countries during the 2nd quarter. The drop was painful, but short and sharp enough that demand and consumer power is still sufficient to get the economy back quick.
Consumer Confidence Slowly Recovering
The government has quickly called it a recession but there’s some doubts as to how long the dip will last. There’s a lot of doom and gloom and hype of course about an Australian disaster economically. The conflict with the China communist government is raising uncertainty.
The ANZ-Roy Morgan Australian consumer confidence survey does show a slight dip in outlook from consumers last week. A normal holdover from a very tough period but is that going to affect the recovery?
Industries injured will be tourism, retail, store-based retail, tertiary education, mechanics and motor vehicle retailing, and hotels. The ASX Australian stock market index is recovering, albeit at a slower rate than US stock exchanges.
Unemployment Not as Bad as Forecasted
Australia’s treasury secretary Steven Kennedy revised previous forecasts of 10% unemployment by September, but is pulling that number back to 8%. “Business and consumer confidence is returning. We are well ahead of where I imagined we would have been in March.” said Mr. Kennedy in an AFR interview.
According to Corelogic data, prelisting activity is already above the pace this time last year. Mortgage activity is down very slightly, with refinancing down 6% but purchase activity down only 3%.
New listings are down considerably and look on a steady lower path for some time. This means owners don’t want to sell and there are a lack of Australian homes for sale. This leads us to the idea that home prices may rise.
Due to the pandemic shutdown, Corelogic is not releasing the property price indices until further notice.
Cities Ready to Follow Sydney and Melbourne?
Which Cities Will Rebound in the last Half of 2020?
Markets have rebounded before. This time there’s a tougher outlook with International trade and exports. The property price and sales timeline will likely be slower but home price in Australia’s major cities should reflect previous recoveries with NSW, Sydney and Melbourne leading the price gains through 2021.
“We expect that lower interest rates will have a more powerful effect on housing prices than commonly expected,” Macquarie economist Justin Fabo told Reuters last year.
He expected prices in Sydney and Melbourne to surge 9% in 2020, the most bullish of the 9 forecasts for capital cities, before the Corona Virus pandemic hit.
Dwelling Prices by Price Level
One of the most eyebrow raising stats is this below. High priced properties shot up the highest.
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The longer the downturn continues, the more pressure Australian banks will experience with their 1.7$ trillion debt. That mortgage related debt may be one of the highest in the world.
Will Rent Yields still Grow Significantly?
Can Australia’s Economy Stay Strong?
Australia’s economy was bolstered by widening trade surpluses. GDP grew to $1.89 Trillion in 2019. Yet lower commodity prices, reduced foreign investment, consumer debt trouble, and China trade scuffle is making a few experts warn of a housing crash.
“more than 60% of bank loans in Australia are in residential properties, making it the highest proportion in developed countries and more than double compared to the US” — from post in the Singapore Business Review
Australian investors, landlords, and property managers will likely feel warm winds of more sales in 2020. Property managers will want to look into property management software platforms to help them drive even more profit from their portfolios.
Prices and rents here are much lower than Europe or North America. With remote work becoming more common around the world, immigration and tourism could boom once the Corona virus vaccines are distributed. Are Australian rent prices a concern? Let’s take a look so you can determine the price/rent ratio and the ROI on buying Australian real estate.
For over-indebted Australian mortgage holders, it might be the end, but for savvy investors, 2019 might bring some outstanding buying opportunities for rental income property. With or without the negative gearing proposed by the labor party, experts suggest rental property investors can still come out ahead.
Prices Dropping Down Under
Compare the two charts below to see how prices have changed over the last months. Earlier this year, rent prices in Sydney dropped 8% overall while house price fell by 9.2%.
The general consensus is that Australia’s housing market has resumed its upward momentum during the last half of 2019, and is ready for solid growth in 2020.
Australia recorded its strongest trade surplus of all time in March. It’s down slightly to AUD $8.8 billion.
As the above graphic shows, after 6 years of price growth of about 8% per year, prices began to fall in 2017. This chart doesn’t show the precipitous drops of the last month. Fears of oversupply of housing will cause developers to cut back on development which decreases investment and tax revenue for governments and slows the economy. Real estate is big part of any economy including Australia’s and the loss becomes iterative.
Up till now, the housing and economic outlook for Australia were strong:
Australia Rental Price Update
Apartment and house rents have taken a decided turn for the worse in late 2018 The rental markets of Sydney, Melbourne, and Brisbane, are showing strong downward motion. Rent prices are flat in Adelaide, Perth, Canberra, and Hobart. Housing market prices declined in Sydney, Melbourne and Perth, but rose in other cities.
Rent prices are flat or went down for the most part in November. See more of the Australia rental housing market stats at Rent.com.au.
Much of the Australian housing market predictions will be influenced by international trade, China imports, and China’s access to its traditional export markets. Australia’s exports were in decline.
Predictions for 2020
The housing markets did fall into a retraction in 2018/2019. The stubbornness of US President Trump’s “America First Policy” and tariffs against China, the ripple effects will take their toll on the Australian economy in the years ahead. Those effects haven’t been felt is some cities, yet will inevitably be equally felt among all major cities as lending is tightened.
First time homebuyer growth as surged in some states, however with tightened lending and a sagging economy, that might reverse itself.
Reductions in rent prices are steep in Hobart, Darwin and Canberra, and price drops may hit all other cities by 2019. That’s good news for housing affordability but less positive for investors. If you’re deep into the housing market and need deep numbers, see the Residential Property Prospects 2018 – 2021 report published by BIS Oxford. Just be wary of old data that doesn’t reflect the macroeconomic changes going on globally.
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