The Outlook for Australia’s Property Market for 2021 and Beyond

One of the frequently asked questions we receive about the market is: “What is to be expected of the property market for the rest of 2021 and in the next year or two?”

In February, Westpac was one of the banks who boldly predicted a 20% increase in house prices over 2021 and 2022. Since then, all other big banks have come to agree with economists’ prediction of up to 30% increase in values over this cycle.

Now, Westpac says a higher than expected increase over the first half of 2021 is now forecast to bring values up another 18% in the last quarter 2021.

According to Westpac, regulators will take action to slow down the market. Signs of an 18% increase in Sydney, and a 7% gain in housing credit, will allow for a sensible policy tightening in the first half of 2022.

 

Likewise, ANZ Bank expects housing prices, nationally, to increase by a solid 17% through 2021, before declining to 6% in 2022.

In Sydney, house prices are expected to increase by up to 19% by the end of 2021.

This a turnaround from all the negative predictions all the banks made in mid-2020.

Strong Growth for 2023

A significant property price increase is expected through to the end of 2023, as well as similar gains in real residential investment.

Applying the Reserve Bank of Australia’s model of the housing market, analysts expect house values to increase by 8% over the remainder of 2021, then a further 9% in 2022, before a final gain of 8% in 2023.

This translated to a cumulative increase through to the end of 2023 of up to 25%.

Capital city house prices were up 2.2% over the month of May, and up 10.6% over the current year. But, evidently, there are several housing markets in the country.

Australia’s House Prices Over the Last Year

The moderate covid-19-induced housing correction ended in mid-Oct 2020, and the housing market had become active again since then.

Is A Second Australian Recession Happening?

Australia has undergone the “V-shaped” economic turnaround that no one has predicted, with current GDP higher than it was at the start of the pandemic.

But to have NSW, Australia’s biggest state, on lockdown is a major strike against our economy. There are now speculations as to whether the prolonged lockdowns around the country could lead us to a double-dip recession.

Every week that Sydney is in lockdown, $2 billion is lost in gross domestic product (GDP). And if the lockdown extends to 12 weeks, that is a loss of $24 billion worth of GDP.

It looks like there is a big possibility that the economy will contract in the September quarter, but luckily, most analysts believe there will be a major recovery in December, as more Australians are vaccinated.

The Housing Market Has Picked Up Considerably

 

What do we have to expect for our property market and the economy?

Here are the 7 property trends that we should expect to see in the remainder of 2021:

  1. Housing demand from home buyers will continue to be strong.
  2. Demand from first home buyers will weaken due to increasing competition as investors return to the market and property values increase.
  3. Dwelling values will continue to rise, driven by consumer confidence, low-interest rates, economic growth and a positive supply and demand ratio.
  4. People will pay a high price to buy in the right neighbourhood.
  5. The high end of the market, which includes dwellings valued at roughly $960,000 or higher, will lead the growth in property prices.
  6. 2021 will see homeowners upgrading their lifestyle and their accommodations to bigger homes.
  7. We will not fall off the fiscal cliff even with the end of JobKeeper and the mortgage deferral system.

House Prices Forecast

In the medium term, dwelling prices will depend on how much our economic recovery will impact factors such as income, employment, borrowing capacity and credit availability.

However, underlying long-term fundamentals will buoy our property markets in the medium and long term. These fundamentals – population growth, declining housing supply, low interest rates, trend towards smaller households, rising number of renters, and return of first home buyers – are robust.

In addition, the country’s banking system is stable and strong.

Sydney House Price Forecast

 

Sydney house values are expected to enjoy a double-digit increase over the next 12 months, thanks to very strong demand for houses in the city’s inner and middle-ring suburbs. Indeed, housing values increased 8.2% in the second quarter of 2021.

Family-friendly apartments in the inner suburbs are expected to perform solidly, owing to strong demand from owner-occupiers and investors, while apartments in high-rise buildings are expected to weaken.

Apartments suitable for families are considered as a reasonably-priced alternative to houses and units in trendy locations like Sydney’s eastern suburbs and Northern Beaches. Meanwhile, apartments in high supply locations pose a major risk to investors.

This already happened before the pandemic when certain areas in the city face significant unit oversupply.

Sydney’s bigger regional areas, particularly lifestyle areas like Byron Bay, Central Coast, Newcastle, Lake Macquarie, Hunter Valley, Wollongong, NSW south coast, are expected to perform solidly for the remainder of this year with beachside and lakeside suburbs likely to perform well compared to the entire market, in general.

Rising interest from buyers and sellers in Sydney’s property market resulted in auction clearance rates continuously reaching the 70-80% range, indicating that there are more buyers than sellers and this always results in higher dwelling values.

More investors are entering the Sydney market, seeing that there are no more bargains and that in 12 months the houses they bought now will be considered a bargain.

To find out how your suburb is performing, call Annette Pinkerton today for a confidential discussion.