Australia’s property market has seen a huge comeback after the devastation of Covid-19. National house prices saw a growth of 2.8% in the month of March, the largest increase since October 1988. In Melbourne alone, there has been an 8.8.% jump in the median house value to a whopping $1,004,500. This begs the question; what is the cause of Melbourne’s $1 million median house price and what does the future of the property market will look like?
This boom has had huge implications for those attempting to enter the Australian property market. For sellers and buyers out there, the changing situation adds another element to consider in an already complex environment. That’s why we will be going through what has led to such a drastic increase in price and what you can expect for the future of the market.
So, why has there been such a huge boom all of a sudden? Well, there have actually been a lot of factors contributing to this surge.
Firstly, interest rates have been at an all-time low. This dramatic drop in interest rates has favored everyone trying to enter the property market. It also means that interested buyers have lower loan repayments on higher mortgages making the expensive property more affordable. With interest rates at an all-time low, it encourages buyers to commit to a mortgage and enter the market, as obtaining finance is more achievable and affordable.
In addition to this, first homeowners have been able to benefit from a number of government incentives. These were put in place to make it all the more affordable for first home buyers to enter into the property market and range from free to low stamp duty and a $10,000 first home buyer grant. This has given many buyers the encouragement they needed to leap into the property market with lower financial risk. There have also been a host of other incentives available which have helped to stimulate the growth of the property market, such as; stamp duty concessions and stamp duty savings such as 50% off stamp duty for owner-occupiers. Many raced to take advantage of the government’s HomeBuilder scheme which saw 96,720 applications for new builds or renovation. The HomeBuilder scheme was implemented to encourage the construction industry and stimulate the property market, and that it did.
Interest rates coupled with government incentives have seen a huge increase in buyer demand, which far outweighs the supply from sellers. National property listings were down 25.5% from the five-year average in March and consequently cannot support the surge in demand. Consequently, this has led to many keen buyers experiencing FOMO (fear of missing out). Resulting in a panic buy-like scenario at auctions. Whilst this type of reaction is favorable for sellers, it is very discouraging for those trying to put their foot on the property ladder. In particular, owner-occupiers and first homeowners, who are wanting to take advantage of the low-interest rates and government grants.
As the property market continues to boom, many are wondering how long this growth will be sustainable. When interest rates inevitably rise again, it will be harder for interested buyers to borrow money. However, the governor of the Reserve Bank of Australia, Philip Lowe indicated that this may not be as soon as we think, stating that interest rates will remain at 0.1% at the central bank until at least 2024. With the RBA so confident that interest rates will remain low, house prices are likely to continue to grow.
So, if interest rates remain low, what else can help to curve or slow down this growth?
If in response banks put tighter limits on lending, as a consequence of the low-interest rates, then this will see interested buyers have less access to borrowed money and ultimately slow growth. Also a reduction or limit on government incentives. If these don’t continue into the future, this will further stunt the growth of the Australian property market.
What This Means For You
So considering this, should you have FOMO too? With huge government incentives, low-interest rates, and a supply much lower than demand, it’s reasonable to worry about whether you will miss out on your dream house or not. However, just because the market is hot doesn’t mean it’s a good time to buy right now for you.
For those wanting to get into the property market but are concerned about rising house prices, the more affordable likes of townhouses and apartments may be the more suitable alternative. These types of dwellings are a much cheaper alternative and may just suit your lifestyle better than a house. Ultimately, consider which option is best for you.
For any sellers out there, this is your time to capitalise on the hot property market and get the most bang for your buck! It’s a seller’s market at the moment and the conditions are favorable for sellers due to huge buyer demand. Property is being snapped up in a matter of days and selling faster than you can say hotcakes.
What Does This Mean For Renters?
Renters have been hit the hardest by Covid 19 a 182% increase in empty rentals. Rental costs have dropped by 12.8% since last year as they compete with shrinking numbers of tenants. Many of whom are realising buying a house or apartment is more affordable than renting. In conjunction with this, there is less migration due to the pandemic and also numerous job losses. These factors resulted in many people moving back home or to more affordable accommodation. This shift has also seen rent fall from 27.3% in the CBD to 10% in the inner city suburbs. However, like most things, this decrease is not expected to last with rates now back on a downward trend, investing in property with the ex[ectation of rental yield is always a great option.
With Australia’s property market booming, it can be easy to get swept up and catch a case of FOMO, thinking that if you don’t buy now you’ll never have the chance again. However, the property market in Australia has been hot for a number of years so this isn’t really out of the ordinary. Many reasons this is gaining so much publicity is because many experts and banks were warning of a property slump in 2021, largely due to the pandemic. However, Australia’s response and resilience to 2020 has only caused a surge. With many people saving money over the past 12 months due to restrictions and travel bans. Those that had job security during these uncertain times, seem to be the drivers of this growth.
If this boom has got you interested in entering into the property market or securing a new property, then check out our current projects here at Cornus Developments. The Malvern East II and Burwood La Frank are currently under construction. We also have two projects in the pre-construction phase and are available for purchase in Carnegie and Oakleigh. You can maximise the most savings by purchasing these projects now, so why not take advantage and save!