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All aboard the property express

all aboard property express all aboard property express
Malavika Santhebennur 12 minute read

Despite initial fears of a dent in property prices, the COVID-19 crisis ultimately could not derail the express train that is the Australian housing market. We explore the current property trends that brokers need to know about, as well as what’s in store for 2021, who is driving the property demand, and how the pandemic has altered what home buyers are looking for in their next home.

If 2020 has proven anything, it is that not even a global pandemic can thwart Australia’s love affair with the property market. While last year was filled with challenges for small businesses and individuals alike, the market remained resilient despite predictions of a hard landing at the peak of the COVID-19 crisis.

AMP Capital’s chief economist, Shane Oliver, had initially projected a peak-to-trough decline in dwelling values of up to 20 per cent at the peak of the pandemic, but later revised his forecasts to reflect a softer landing as a result of government support measures and the earlier reopening of the economy.

In fact, Mr Oliver is now singing a different tune, predicting a 5 per cent rise in home prices in 2021 amid record-low mortgage rates, government home buyer incentives, income support measures and bank repayment deferral options (which will expire at the end of March).


The most significant property price forecast came from the Reserve Bank of Australia (RBA), which released a document under a Freedom of Information (FOI) request outlining that it believes that a permanent 100-basis-point reduction in the cash rate would push real house prices up by 30 per cent after about three years.

The RBA’s analysis – which is based on data from its economic analysis and financial stability departments regarding its analysis of the impact of low interest rates on asset prices – also showed that a temporary reduction would increase prices by 10 per cent.

Home office, backyard – the buyer wish list

The spike in loan commitments is reflective of the interest shown by Australians last year to purchase property, with ING research showing that a third of Millennials and a quarter of all Australians expect to buy a property in the next two years, while COVID-19 has made home ownership a more achievable goal for buyers.

Low interest rates (39 per cent) and new government schemes (32 per cent) were key factors that had made home ownership in the post-COVID-19 environment more achievable, according to the research.


Furthermore, Millennials used the COVID-19 lockdown to build their savings by redirecting travel budgets (59 per cent), reducing personal spending (48 per cent), taking a secondary form of income (37 per cent) and moving back in with their parents (36 per cent), among other forms of saving.

However, enabling home buyers to achieve their property purchase goals has not been the only outcome of the COVID-19 crisis. Extended lockdown periods and working-from-home arrangements have also changed what home buyers want in their homes.

According to research by Westpac last year, which was based on a survey of 1,176 respondents aged 18 and over, more Australians are prioritising spacious living and separate study areas in their next home.

The survey showed that 34 per cent of the respondents want to live somewhere less populated, while 20 per cent want to live in suburbs with larger properties, 20 per cent want a separate study, 15 per cent want a larger kitchen, and 18 per cent want an entertainment area, while 27 per cent want outdoor features like a backyard.

Who is driving this demand?

While there is demand for home ownership across the market, the HomeBuilder grant and other federal and state government incentives, coupled with record-low interest rates, have particularly spurred first home buyers (FHB) to jump into the market.

Indeed, according to HIA analysis of ABS data, FHBs accounted for around 43 per cent of the total number of owner-occupier loans issued in December.

The number of owner-occupier FHB loan commitments reached the highest level since 2009 when the temporary tripling of the First Home Owner Grant – which formed a part of the federal government’s economic support package in response to the global financial crisis – resulted in similar growth levels.

In December 2020, the number of owner-occupier first home buyer loan commitments rose 9.3 per cent to reach 15,205 (seasonally adjusted), a 56.6 per cent rise since December 2019.

Commenting on the ABS figures, Housing Industry Association (HIA) economist Angela Lillicrap said: “First home buyers are extremely active in the market, taking advantage of HomeBuilder and various other federal and state incentives.”

The ABS data had also revealed that the total value of loan commitments for investor housing rose by 8.2 per cent in December 2020 to reach $6 billion, while the value of lending to investors was up 14.1 per cent in the December 2020 quarter compared with the September 2020 quarter.

Ms Lillicrap said that this was driven by loans for the purchase of existing dwellings as investors are not eligible for the HomeBuilder package.

Where people are buying

The COVID-19 crisis and working-from-home arrangements have impacted not only how home owners want to live, but where they would like to live.

Sharing his property trends predictions for 2021, ME Bank’s head of home loans, Andrew Bartolo, said the desire for “urban village living” has topped property trends in 2021 amid the significant increase of professionals working from home.

“With the daily commute no longer a deciding factor in the home buying process, regional areas within a commutable distance to CBDs are being added to home buyers’ wish lists,” Mr Bartolo said.

“Many are succumbing to the appeal of a slower pace of living, a closeness with nature, connection with neighbours and a feeling of belonging, yet all the benefits and convenience of being close to the city.”

Mr Bartolo said that based on survey figures, more FHBs would likely choose this path.

“An ME survey in June 2020 found two-thirds (60 per cent) of first home buyers were more likely to consider buying in a regional area due to COVID-19 to save money and improve their lifestyle,” Mr Bartolo said.

While this trend became evident early in the pandemic in 2020, CoreLogic data had shown that regional housing values rose at more than twice the pace of the capital city markets.

CoreLogic’s combined regionals index was up 1.6 per cent over January, while capital city values were 0.7 per cent higher.

Since the onset of COVID-19 in March 2020, regional housing values have increased by 6.5 per cent, while capital city housing values were down by 0.2 per cent over the same time frame.

Commenting on this trend, CoreLogic research director Tim Lawless said: “Better housing affordability, an opportunity for a lifestyle upgrade and lower-density housing options are other factors that might be contributing to this trend, along with the newfound popularity of remote-working arrangements.”

According to Mr Lawless, the divergence between metro and regional housing demand in NSW and Victoria is starker than in other states due to the demand shock of stalled overseas migration in the states amid border closures during the COVID-19 pandemic.

“As Melbourne and Sydney historically receive the vast majority of overseas migrants, these metro areas have been the hardest hit by this demand shock,” Mr Lawless explained.

“Internal migration data shows more people are leaving Sydney and Melbourne for regional areas, resulting in a transition of activity from the metro regions to the outer fringe and regional markets.”

House prices beat pre-COVID-19 levels

While it remains to be seen whether these forecasts will materialise, housing values across Australia have not only remained buoyant, they recently reached record highs.

CoreLogic’s January Hedonic Home Value Index revealed that home values continued to climb through the first month of 2021 and to a fresh record high. According to the property data specialists, the median home value hit a new high of $583,157 in January 2021.

The national home value index was up 0.9 per cent over the month, and 3.0 per cent annually. Housing values surpassed pre-COVID-19 levels by 1.0 per cent, and the index was 0.7 per cent higher than the previous September 2017 peak.

Every capital city and its surrounding region recorded a rise in housing values over the month, ranging from a 2.3 per cent surge across Darwin to a low of 0.4 per cent rise in Sydney and Melbourne.

CoreLogic’s research director, Tim Lawless, said the figures indicated a strong start for the housing market in 2021, “setting the scene for further price rises throughout the year”.

“Many of the housing market headwinds have dissipated as the Australian economic recovery consistently outperforms forecasts,” Mr Lawless said.

“Labour markets are continuing to improve even though JobKeeper is winding down, mortgage repayment deferrals have reduced, and buyer activity is well above average, even though overseas migration has virtually stopped.”

Furthermore, consistently low interest rates have contributed to supporting the housing market recovery, Mr Lawless added.

“Mortgage rates are likely to remain at record lows for the foreseeable future, with little chance interest rates could rise this year,” he said.

“This is because inflation and unemployment are still a long way from reaching the RBA’s objectives of full employment and returning the annual inflation rate to the target range of between 2 and 3 per cent.”

These record-low interest rates and federal and state government measures, such as the HomeBuilder package, have resulted in consistently strong loan commitment figures and have resulted in the value of housing loan commitments reaching record highs.

In fact, the Australian Bureau of Statistics’ (ABS) lending indicators data for December 2020 had shown that the total value of new loan commitments rose 8.6 per cent to $26 billion (seasonally adjusted), marking a 31.2 per cent increase on December 2019.

This was driven by new owner-occupiers, with the value of commitments rising 8.7 per cent to $19.9 billion in December 2020, which was 38.9 per cent higher than December 2019.

Commenting on the figures, ABS head of finance and wealth Amanda Seneviratne said: “Loan commitments for existing dwellings accounted for 53 per cent of December’s rise in owner-occupier housing loan commitments, while construction of new dwellings accounted for 32 per cent.

“The value of construction loan commitments grew 17.1 per cent in December, more than doubling since the June implementation of the HomeBuilder grant.”

Brokers primed to help home buyers 

As the needs of home buyers shift, and while interest rates are at record lows and the market is replete with government stimulus packages, 2021 is ripe with opportunities for mortgage brokers to assist their clients.

Aussie Home Loans CEO James Symond told The Adviser that the market share of brokers writing mortgages could surpass 70 per cent in the next five years, meaning that they could take the lead in guiding clients through the mortgages process.

“I think that for 2021, it presents as good an opportunity for a mortgage broker than ever before,” he said.

As such, Mr Symond said that brokers should peruse their database to ensure that their customers are well informed about their loans and have a loan that is most suited to their needs.

Commenting further, he said: “It’s one thing to have low interest rates out there. It’s another thing having a lender who has the ability or desire to lend the money. I think mortgage brokers have the information, and information is power.

“There are more different terms and conditions and credit criteria and rates than ever before, which brings the power back to a broker who has that information and can make a client’s life so much easier,” Mr Symond concluded.


All aboard the property express
all aboard property express
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all aboard property express
Malavika Santhebennur

Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.


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