The housing market’s unthinkable 2020 rebound
It would have been unthinkable in early 2020, when coronavirus was shutting down large parts of the Australian economy, that the year would end with consumer confidence soaring at its highest levels in more than a decade.
“After only eight months the evidence seems clear that sentiment has fully recovered from the COVID recession,” said Westpac’s Chief Economist Bill Evans in early December, with the Westpac-Melbourne Institute Index of Consumer Sentiment hitting its highest levels since October 2010. This was after Westpac’s ‘time to buy a dwelling’ index hit a seven year high in November.
Since the start of the pandemic, Australia has already bounced back from its first recession in three decades. And just as sudden as the COVID-19 crisis appeared, so too has been the rebound in the housing market.
CoreLogic expects residential property values could recover to pre-COVID levels as soon as January if the current recovery persists.
But what lies in store for 2021? While the past nine months has showed that forecasting housing prices and economic trends can be a tricky pastime, there are some factors that could influence the property market in the year ahead.
The Reserve Bank Governor Philip Lowe after his last board meeting of the year flagged that the record low 0.1 per cent cash rate would not rise until late 2023 at the earliest. “The Board is not expecting to increase the cash rate for at least 3 years,” said the Governor, signalling that borrowing costs will remain at extremely low levels for the foreseeable future.
Stamp duty reform
The NSW Government in its November Budget flagged the removal of the state’s stamp duty tax on property purchases and replacing it with a new annual property tax. “Removing the upfront cost of stamp duty could remove tens of thousands of dollars from the home purchase process and make it easier for first home buyers, families looking to upgrade and others looking to change their property to save what is needed to purchase their next home,” says the NSW Government in its discussion paper on the proposed changes. The time it takes a first home buyer in NSW to save for the stamp duty one year to 2.5 years since 1990. It is expected other states could follow once NSW implements the proposed changes.
There is another side effect of more people working and spending far more time at home. “It appears that household expenditure has shifted from travel and entertainment to household renovations,” observed the Housing Industry Association on the 25 per cent increase in small scale renovation activity at the end of 2020. Substantial renovations have also been given a jolt by the Federal Government’s $15,000 Homebuilder Grant, which has been extended to 31 March. We are also spending more kitting out our homes to make them more comfortable. Australia’s largest retailer of furniture and large appliances Harvey Norman, for example, reported a 30 per cent lift sales in the year to November.
With the roll-out of the COVID-19 vaccine already underway in several countries, the Australian Government expects to start delivering its first vaccines in March. The Australian Government is also considering opening its borders to people who have proof they have been vaccinated. This could be the key step for Australia to reopen its international borders and restarting population growth in our major cities. Since the closing of our international borders in the early stages of the pandemic, Australia witnessed its first negative migration since 1946.
Overall, the housing market in Sydney is looking to resume its price growth and those wishing to enter the market should be taking advantage of government incentives and low interest rates now.