Why your home is worth more because of COVID-19

By Philip Chillemi

While many predicted a decline in the Australian housing market due to the impacts felt due to the COVID-19 virus and the subsequent economic fallout, the opposite has proven to be true; at least in the short term.

I have been fortunate to be involved with over $600 million of local transactions over the last 5 years and seen first hand the impact on the local market at ‘ground level’. In its simplest form, the increase in values in the current market can be pin-pointed to supply and demand. No great surprises there, right!

Below average numbers of new listings

In this graph from CoreLogic, you will note that the yellow line indicating new listings coming on the market in 2020 has been well below the national average from years past. Undeniably, Covid-19 has caused some level of uncertainty in most Australians and the property market has been no different. Uncertainty in potential sellers has created a ‘wait and see approach’ and many chose to stay off the market. This created a large shortage in available stock during 2020.

Less stock – increased demand

In this graph from CoreLogic, you will see the overall housing stock on market has continually trended down. Approximately 1.2 homes sell, for every new home that comes on the market.

When the COVID-19 virus began to impact the market around March, new stock was already slightly down compared to past years. Immediately upon the announcements of Government support packages including ‘Job Keeper’ and the option to defer mortgages and other loans by the lenders, there was a significant decrease in new stock coming on to the market. You can see this trend clearly on the graph around April and May. 

Whilst there was still some uncertainty amongst buyers, the sheer shortage of available stock created a significant increase in demand for local property. This created an upswing in sale prices whilst the length of time on the market decreased rapidly.

Continued government support

In September we were due to see the end of the first wave of stimulus from the Government and support from lenders. When coupled with the traditional Spring Selling Season, predictions pointed to an increase in the amount of available stock on market. We did start to see that upswing, albeit less than in previous years. 

Around the same time, the government announced the next wave of support and extensions to support packages which were already in place. This has created even greater demand in what is typically the busiest time of year for property transactions anyway. Supply and demand on steroids!

Australian property market outlook for 2021

Market resilience

Whilst we certainly don’t have a crystal ball, we learned some valuable lessons during the Global Financial Crisis. We learned that the Australian property market is undeniably resilient and although there was a softening of prices across most markets in Australia, the overall market held up extremely well. 

Lenders also learned lessons from their mistakes during the GFC in regards to helping their clients through short term financial difficulty. Rather than calling in loans at the first signs of distress and creating ‘forced-sale’ situations, which put strong downward pressure on pricing in the market at that time, many lenders have adopted a much more supportive and proactive role in helping their clients.

Interest rates at historic lows

We are also in a very unique environment where money is now cheaper to borrow than at any time in history whilst simultaneously rental demand and returns are currently extremely high in our local market. This has allowed many homeowners to adopt a wait and see approach as tenants generally cover their costs of borrowing and in many cases are now cash flow positive. Our research indicates that many rental properties on the Gold Coast and South Brisbane Markets are currently undervalued and achieving 5-15% below market rent but that’s another story for another day!

My predictions for the next 12 months

I personally don’t see any huge decline in our local market throughout 2021 but I definitely have a couple of concerns as we enter the middle part of next year that may result in some softening on demand and prices. With the final stages of Government support due to come to an end in March 2021, mortgages and loans from lenders set to be reinstated and continuing upward pressure on unemployment numbers, I feel we will see a strong increase in the number of properties which come to market in the middle period of 2021 as pressure begins to build on some sellers. Lenders are also starting to tighten criteria around lending and introducing COVID-19 based checks which further limits some borrowers capacity to purchase new properties.

Obviously, this will have a dramatically different impact on each of us depending on whether we are buyers, tenants, landlords or owner-occupiers. I don’t see any catastrophic changes but it’s incredibly important that everyone in the property market stays very proactive in their decision making, relative to their personal position and their goals.

If we can help to provide clarity for you in terms of your property goals, please feel free to reach out any time and we can provide recommendations for your personal goals and situation based on our experience and the latest results, activity and real-world data in our local market.