Australian Property Market Forecast 2021
After a period of rapid price and sales growth, the Australian housing market has begun to grow more slowly. Credit tightening along with some Covid lockdowns has suppressed sales in June, and into July.
With only a small number of Australians vaccinated against Covid 19, the new wave of infections may have a big impact on the July and August real estate markets. Looking beyond the infection crisis unfolding however, some expect that markets will continue their strong growth into 2022.
Australian property price rises rose to 32 year records in April when prices rose 1.8% during the month. Home prices have risen 15% year to date, so although the growth is slowing, the real estate market is a difficult one for buyers.
Rent prices are on the rise again and it’s a good time for property managers to review their software and ensure automatic rent payment is used.
Corelogic’s June national property market report is available on their website after registration.
“The housing market ended the financial year on a high note, with Australian dwelling values rising 1.9% over the month, taking housing values 13.5% higher over the year – the highest annual growth rate since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth.” — CoreLogic research director Tim Lawless
Here’s a brief visual look at how markets are trending (courtesy of Corelogic):
Australian Rental Market Update
The rental market has been hampered by this month’s trends too with rent yields falling even while rent prices are rising.
A recap of the Corelogic’s ealier findings:
- total value of residential real estate in Australia rose to 7.9 trillion dollars through March.
- Australian home values rose 5.8% — highest quarterly growth rate since October 2003.
- combined regional dwelling market was 11.4% higher in value
- High end homes are leading dwelling market increases across many capital cities — top 25% of highest value homes in Sydney increased 8.8%.
Home Prices Forecasts for Australia
Commonwealth Bank forecasted that Australia’s house prices will rise 16% over the next two years in what they’re calling a housing market boom. CB’s head of Australian economics Gareth Aird expects house prices will rise 9% in 2021 and 7% more in 2022.
Is this a House Price Bubble?
While housing markets in the UK, US and Germany are heading into boom periods, the suddenness of Australia’s demand for housing at the end of the usual buying season is remarkable. A number of factors are driving the surge, including fear of missing out.
The rises in prices are deeply affecting housing affordability, as ever-popular Australia is one of the least affordable countries in the world. Sydney, Melbourne, Brisbane, and Adelaide are all ranked in the top ten most expensive cities to live in. Urban fringe housing development limits are being cited for the fast-rising price challenges in these cities.
Home Prices in Australia 2021
And as buyers are able to take out home loans at such low mortgage rates, the competition for the limited supply of Australian homes is heating up.
Most of the demand appears to be coming from new, first-time home buyers. The total value of new loan commitments for investor housing rose 4.5% to $6.9 billion in February 2021 (seasonally adjusted). This is up 31.6% from February 2020.
What’s Causing the Rising Home Prices?
- continuing low mortgage rates
- economic recovery
- optimism, fear of missing out, euphoria
- Australia’s excellent response to Covid 19 transmission
- business reopening well, increasing optimism for the economy
- fewer homes for sale
- first time home buyers were coming back
“Buyer demand is mostly being fueled by a surge in owner-occupiers rather than investors, looking to take advantage of historically low interest rates, generous government incentives and an increased state of normality.” said CoreLogic’s Head of Research Tim Lawless.
Australia’s New Battle with Covid 19 Delta Variant
The rise of the Delta variant in India, Indonesia and the US give Australians pause for thought about what may be coming. With only 12% of the population vaccinated, a shutdown is warranted. The new shutdowns will reduce Australia’s population (by 1 million according to KPMG report) and prevent some sales from happening.
2022 Forecast Much Brighter
RBA was pessimistic about Melbourne home prices increasing before April 2021 (75%, 18/24), while one-third (29%, 7/24) expected the market to stagnate until 2022 or beyond. A lot of pessimistic views that are likely being revised right now.
Price change for regions and cities for the past 12 months. Melbourne and Western Australia region have much further to come back from their pandemic lows.
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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.
Australian Consumer Sentiment Index
The latest Westpac-Melbourne Institute index consumer sentiment readings forecast growth of 3.5% for 2021, almost in line with the Westpac forecast of 4%. They predict population growth forecast to slow to 0.2% in 2021 compared to 1.5% in 2019, both forecasts represent significant above-trend growth. Of course, international restrictions are still in place till July.
Housing Price Forecast Australia to 2021
This is an older graph and shows ANZ may be underestimating the rise of Australia’s property sector. Revised estimates should available in the coming months.
Rent Prices in Australia
Across Australia, gross rental yields have fallen from 3.72% last May to a new record low of 3.50%. The trend is stronger in Sydney dropped to 2.69% from 2.92% a year ago) and in Melbourne gross yields are averaging
2.87% (down from 3.18% a year ago).
Change in Australian rent prices. Screenshot courtesy of Corelogic.com.au
Annual Change in Rent Prices Across Australian Cities in April
Nothing drives rental rates up more than a lack of vacancies. While Melbourne’s rates have risen sharply, most other capital cities are seeing a severe drop in rental listings.
Unemployment Not as Bad as Forecasted During Pandemic
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 fewer 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.
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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 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 turbulence and a slowdown ahead.
“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 Price History and Gross Rent Yields
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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