Australian Property Market Forecast 2021
The Corona Virus pandemic continues to suppress the Australian property market, yet there are signs of easing pointing a better forecast for 2021. Or, at least the rate of decline in the property market is decreasing.
In August home prices rose .8%. Year over year, home prices (all types) in Sydney are up 9.8% and in Melbourne up 5.9%. House prices in Sydney rose 11% and up 8% in Canberra.
It is the Melbourne housing market that fared worst with another decline in August of 1.2%. The blame for the trend in Melbourne, Sydney and Australia’s other capital cities is primarily due to Covid 19 infection increases, shutdowns, lower food production in Victoria, and on diminished tourism nationwide. The shutdown in Victoria will suppress the Melbourne market until mid September.
There’s divergent views on the health of the Aussie housing sales and rental markets, so let’s explore some of the expert’s views for August and 2021.
Housing Experts Troubled Outlook until 2021
Since March 2020, Melbourne home values have fallen 4.6%. ANA predicts housing prices will continue a decline to finally bottom out in June 2021. They believe an Australian housing market recovery will be curtailed by continuing high unemployment (above 7% until 2022). As we know via other housing markets, that unemployment among the poor doesn’t necessarily translate to lower home prices. The US suffers 10%+ unemployment yet it’s housing markets are booming.
NAB’s chief economist Alan Oster, forecasts a sharp rise in unemployment could drive property prices down by 10% to 15% over the next year. “We see a sharp rise in unemployment to 11.7 per cent by mid-year and partial recovery to 7.3 per cent by end 2021.”
RBA is pessimistic about Melbourne home prices increasing before April 2021 (75%, 18/24), while one-third (29%, 7/24) expect the market to stagnate until 2022 or beyond. The experts polled by Finder comparison site see slow price growth until 2022.
Australia Home Prices
Home Values beginning to Rise Again
A negative quarter, however home values are still well above last year.
Change in Home Prices During August (and 3 and 12 month comparison)
According to nab.com.au, active homes for sale fell 4.3% in the 4 weeks up to July 27th (-sitting 15% YoY. Demand driven by housing specific incentives from both federal and state governments, including for for first time home buyers, have been raised. That’s helped home owners try the market to sell (New listings numbers continued to rise through the month, up 46% from the recent lows of early May).
While new listings might be growing total inventories for sale are 15% below last year’s level nationally and 12.5% lower across all the capital cities.
NAB explains the August report findings:
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Corelogic’s Says Virus Very Had on Melbourne and Sydney
CoreLogic’s head of research, Tim Lawless says Australia’s housing markets are hampered by social distancing policies and border closures which directly impact labour market conditions and public sentiment. He says the Virus outbreak has been particularly hampered Melbourne and Victoria.
Housing trends are similar to what is seen in the US housing market and the UK property market, where the work at home mandate is allowing renters and homeowners in dense areas to move outward to the suburbs or towns where housing is available.
The strength of that outward tide tends to stemmed only by limited supply of housing outside the major cities.
That trend however tends to help revitalize smaller towns and suburban districts, and lower real estate to more affordable levels in the big cities. Lawless says the degree of infection or success in containment of Covid 19 will determine the economic and housing consequences for Australia going forward to 2021.
As the chart reveals, Sydney, Brisbane, Melbourne and Perth haven’t performed well during the past 3 months. Regional markets haven’t been hit as hard because they’re not as dependent on tourism or foreign migration, as the big cities of Melbourne and Sydney are.
Australian Consumer Sentiment Index
The Westpac-Melbourne Institute index consumer sentiment readings were recovering through the pandemic period to July. However it has fallen steeply in August, down 9.5%, which is about where it was back in April. Corelogic believes the latest round of social distancing restrictions put in place across Victoria, along with new concerns about outbreaks and a surge are making buyers cautious.
New Home Listings
The number of new property listings fell 50% between mid-March and the first week of May, and then returned to its former level in the next 3 months. New home listings have fallen 11.5% over the past four weeks.
If pandemic aid support declines in September, there could be a growth of distressed and foreclosed listings appearing. AFR reports a third of Australians are feeling more financially stressed.
AFR says the number of households experiencing mortgage stress or at risk of losing their home climbed by 100000 in April along. That adds to the new todal 1.41 million people. Dropping income is a factor despite the government’s $130 billion JobSeeker strategy.
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.
Buyers are helped with very low mortgage rates but it appears to helping only lower priced property sales, as high priced real estate is seeing sales drops of 1.9% in Melbourne and .6% in Sydney. Melbourne’s property values are down 7% from their peak prices, while Sydney’s more pricey real estate is down 3.3% from their peak prices.
Rent Prices in Australia
According PropertyObserver, Australian rent prices fell 0.3% in June and 0.5% over the quarter, according to the latest findings from CoreLogic. Capital city rents fell 0.7% in the June quarter, compared with a 0.2% rise in rents across regional Australia. For owners, rental yields aren’t faring badly.
CoreLogic reported a sharp rise in rental listings in April. Inner Melbourne saw a 36% jump in the number of properties listed for rent, while Sydney had a rise 34%.
As a result, the advertised rents have dropped by 0.7 per cent over the month in major cities – the largest monthly fall in the history of the series.
“Alongside still-elevated levels of completions of new high-rise apartments, particularly in Sydney, these factors suggest vacancy rates and residential rental yields will decline further over the next year or so,” says ANZ’s Felicity Emmett.
Rent prices in Australia have held up better during the crisis than home values. Capital City rent prices are down 1.4% compared to housing’s 2.3% equity drop.
Supply levels for rental grade units have surged in Sydney and Melbourne, while high-rise unit supply across inner city markets has stayed high. Renters are fleeing the inner city in the wake of the deadly Covid 19 threat to their health.
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 abs.gov.au/ausstats/, Australia’s seasonally adjusted estimate of employment increased by 114,700 people in July 2020, with:
- unemployed people up by 15,700 people;
- unemployment rate grew by only 0.1% to 7.5%;
- the underemployment rate fell 0.5 pts to 11.2%;
Employment had increased by 114,700 people (0.9%) between June and July 2020, with full-time employment increasing by 43,500 people and part-time employment increasing by 71,200 people. Compared to a year ago, there were 282,800 less people employed full-time and 131,700 less people employed part-time.
The temporary shutdown and reduction of farm and meat factory workers, along with construction workers in Victoria along with the unemploying of thousands of pre-school teachers/assistants are just some of the factors working against the housing and rental markets. A resurgence of Covid 19 in schools and out into their communities could be very damaging again to the economy.
The losses of about 230,000 foreign students is yet another factor weighing on the revenue side for Australia. If a covid vaccine is still a year off, it might be hard to be cheery about high density apartments in Melbourne or Sydney.
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?
Will Australia’s Economy be Okay in 2021?
Australia’s economy was bolstered by widening trade surpluses as the country’s 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
The 6 week shutdown of Victoria is having a sizable impact for the Australian economy and estimates for unemployment are rising. Cutbacks in jobless aid announced are making it tough for many to be able to afford rent payments.
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 Housing Markets in 2021
The housing markets did contract hard in the pandemic period across the globe.
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. And Australia has its own issues with China which may impact exports to that country.
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