7 minute read.
It’s been a chaotic time in the housing market over the last 18 months. The COVID-19 Pandemic has seen a massive shift in the way we go about our daily lives.
By August 2020, house prices had dipped to 4.6 per cent from what they were in March 2020. But now that we’re well into 2021, the housing market has started to recover once again. This is due to the easing of lockdown restrictions.
While snap lockdowns aka circuit breaker lockdowns are likely to continue in 2021, states like Victoria have proven that it’s possible to recover from these events in a short period of time.
Will we see another COVID-inspired event make a rapid change to the Victorian housing market again? Some of the top number crunchers around the country have made their predictions. Here we’ll take a deep dive into what happened over 2020-2021 along with what the experts have to say on the housing market for the year ahead.
FREE: Our property expert Mark Ribarsky discusses Melbourne’s real estate market March 2022 quarter and how rising interest will affect the property market.
What happened to the Victorian housing market In 2020?
With the closure of international and state borders, we lost a large chunk of potential buyers from overseas. International students and those on temporary travel visas who would traditionally be renting properties were also out of the picture. All of these international visitors traditionally helped the local economy thrive. The further implementation of lockdowns left businesses facing short term uncertainty. With no chances to operate or pay staff, many business were forced to shut down with thousands left unemployed.
The tangible effects are reflected through increasing unemployment levels, low population growth and the softening of the rental market. The abrupt halt in a rising property market lowered Melbourne’s median house price, tumbling by 3.5 per cent to $881,369 in the June quarter compared to three months earlier. Between lockdowns, the property market experienced high buyer activity with strong auction clearance rates. This was due to low levels of for sale property, sellers held back in hope of the uncertainty clearing.
Australia’s economy was officially in a recession after the June quarter data revealed the nation’s gross domestic product (GDP) had shrunk by 7 per cent. Data released by the Australian Bureau of Statistics (ABS) revealed that in the three months from April to June the nation’s GDP suffered its biggest drop since records began in 1959. The previous quarter – which recorded activity across January to March – Australia’s GDP fell by 0.3 per cent.
The 2021 Story
As the real estate market fully reopened after lockdown, property prices started to soar again. This rise was thanks in large part to an increase in potential buyers and the competition that came with it. Over the 2020-2021 financial year, the state’s stamp duty hit lows of 3.1 per cent which totalled 6.1 billion. The rapid rise in house prices was also backed by very low interest rates which instilled confidence among buyers.
Another big confidence boost was the government concessions introduced which encouraged buyers to purchase property further out from the CBD. Distance from the city was no longer a deciding factor thanks to the rise in popularity of many buyers having the option to work remotely from home.
The jump in house prices for the 2020-2021 financial year was also influenced by the shorter supply of houses on the market. COVID-19 has also affected the construction industry meaning that less new houses were built over 2020. It’s this delay in construction that lowered the number of houses available on the market.
The competition within the Victorian housing market also spawned the fastest growth speed since the late 1980s. By the end of June 2021, Melbourne house values rose to 1.8 per cent, this equalled roughly $22,000. A great result considering the start of a new lockdown in June.
The median house price sat at a record $930,000 after increasing a total of 11.4 per cent from the first half of the year. All that’s required now is a 7.5 per cent rise to see Melbourne’s median house value make it to $1 million.
The Outlook For 2022
With no magic ability to read the future there’s no way of telling exactly what the Victorian housing market will be like in the coming year. What we can do is speculate. Read on and you’ll see what some of the top real estate experts are predicting.
Will there be a property boom?
Many property experts are predicting the Victorian housing market will continue to scale new heights. This is thanks to the strong economic recovery we’ve seen after previous lockdowns. Ideally, we should see a moderate to even return of percentage annual growth rates in the single digits. Louis Christopher from SQM Research predicts that there will be more property buyers than sellers as the Reserve Bank of Australia will a few interest rates rises if inflation creeps up.
Louis also predicts the prices for free-standing houses in Melbourne are likely to up between 12 to 14 per cent. “After price rises slowed in April 2021, many property watchers thought growth would continue to moderate. However, capital city dwelling prices defied expectations and jumped again in May.” House prices in regional areas of Victoria also climbed as buyers saw the opportunity for a lifestyle change that came with remote work.
Angie Zigomanis, director of Charter Keck Cramer’s research and strategy team predicts prices in Melbourne could rise by a whopping 10 per cent over the next 12 months. But he would not be surprised if the rise was more along the lines of 5 to 7 per cent. Angie also predicts that house prices could remain robust for 12 months before they start to moderate. Additional predictions from Louis SQM show that the return of property investors in Melbourne could result in the city nearing closer to the end of a price-rise cycle than a start. Usually price growth cycles begin with first home buyers, property upgraders, then property investors who are usually lured by the prospects of capital gains.
Shaun Oliver, chief economist at AMP Capital, predicts that property prices in Victoria will keep rising until 2023. It’s only by the start of 2023 that he predicts we’ll start to see another cyclical downturn sparked by interest rates moving up. A telling sign is the fact that lenders are starting to increase their 2 and 3 year fixed mortgage interest rates after already increasing their interest rates for 4 and 5 year loans. Steve Mickenbecker from Canstar’s group executive financial services is on the same page agreeing that rising fixed rates are a sign of the interest-rate cycle turning.
So there you have it. Some of the top property market experts in the country are predicting a property boom in 2022. The most telling signs they’ve pointed out are rising numbers of property buyers in the form of first home buyers and property investors. Interest rates are another big factor for the predicted property boom.
Or will house prices fall?
Does everyone believe there will be a property boom in 2022? Experts like MLC’s chief economist, Bob Cunneen, is one of the few with an alternative take. He’s tipping house prices to fall as much as 7 per cent in 2022 as the world encourages fixed interest rate costs higher. Bob mentions that while there may be a growth of 9 per cent this year he’s claiming some of this rise is fake. “This is an artificial market of solid gains driven by perceived supply shortages and the tailwind of lower mortgage interest rates.”
“A scenario where the global bond market pushes Australian fixed borrowing rates higher and the RBA starts to raise cash interest rates in mid 2022 is likely to see Australian house prices reverse course with falls of circa 7 per cent next year.”
It’s a big call to make but let’s look at the evidence he’s referring to. Back in April, interest rate futures were pricing in one 0.25 of a percentage point. Interest rates were placing upward pressure on yields aka the cost of borrowing. Expectations of a steady return to inflation were fuelled by fiscal and monetary economic recovery from the COVID-19 crisis that started in 2020. Aside from the global impact, Cunneen has also highlighted a domestic factor which could follow house price growth. The factor he’s concerned about is intervention from the Australian Prudential Regulation Authority.
“To keep the housing market in check, APRA’s macroprudential measures in terms of scrutinising lending standards and loan valuation ratios are likely to be only partially effective,” he says.
“If annual house gains exceed 10 per cent this year, then APRA should also consider credit growth caps as well as changing risk weights for financial institutions’ capital ratios to slow the price frenzy.”
“Should risks materialise, we have a range of tools we could employ” says APRA chairman Wayne Byres. “Tools we choose will depend on the environment we face and we are giving careful thought to which tools might work best in different scenarios.”
If house prices rise over the end of 2021 and the rest of 2022, the Council of Financial regulators is going to have plenty of factors to consider such as the closure or reopening of international borders. Immigration is just one of the factors that will make the decision to intervene with the market that much harder to decide on.
What are your predictions for house prices in 2022?
With advice from the industry’s leading experts have you got your own take on house prices in 2022? It’s good to start researching the housing market and be wary of what has influenced house prices over the last five to ten years. Look at the numbers enough and you’ll start to identify patterns that form after certain economic events.
If you’re keeping up to date with local house prices you’ll be better prepared for your own experience buying property. Purchasing a house before a surge in house prices can prove to be very beneficial. The same can be said for homeowners looking to sell their house. Choose the right time to sell and you may be able to make an extra 10-20,000 more than what you would have made at the wrong time. Of course there are plenty of other factors like your property’s marketing campaign and condition.
To help you stay ahead of the game, consider getting an experienced and knowledgeable real estate expert on your side. A Buyer’s Agent is the perfect professional you can rely on if you have hesitations about buying property. They can assist you with the entire property buying process from start to finish. Finding the right property for you is important but so is buying it at the right time.