- A rising market can be exciting, but also frustrating, and can leave many behind
- Ten factors - all present currently - could explain why the property market is rising
- We can't say how long this will last, but most commentators say it has a way to go yet
When the property market starts to move, it can become exciting, nerve-wracking and frustrating all at the same time. For buyers, sellers, renters, landlords and real estate practitioners.
Australia’s rising property market will always make the headlines in the media, with some properties being snapped up in minutes, auctions clearance rates going through the roof, and money being made.
On the flip side, there will be frustrated property seekers finding 100 other people at a home open, being outbid at auctions (not even getting to put their hand up as the price sails past their upper-most limit).
There will be people not being able to get on the bottom rung of the ladder, being forced out of their rental once the moratorium ends, with rental prices rising. Homelessness will probably result for many.
It’s difficult to forecast what will happen, but we can look at what’s going on, and find reasons for the current market activity. It’s not a perfect science, but there are some valid explanations worth exploring. These help us understand, and, possibly, cautiously predict.
It’s a cliché to say we are experiencing a ‘perfect storm’ of factors at the moment. However, let us consider the following:
- Once in a 100-year pandemic: people were stuck indoors for months at the end, several times. Stuck looking at their same (tired) property. Time for a change when all this is over? Need more space? Time to think about it in any case;
- Relief that help is on the way: vaccinations, a better than typical response to the pandemic in Australia, an upsurge in the economy… all leads to a natural exuberance – let’s go!
- Economic relief boosted pockets: Australians savings rose dramatically in 2020. Where did the stimulus checks go? Sure, to get people through the year, but with real concerns and uncertainty, Australians stashed their cash away for better days. It’s now waiting on the sidelines, ready to be spent;
- Billions usually spent on overseas holidays: Australians can spend upwards of $65 billion a year on international travel; with that curtailed in 2020, this money has to go somewhere – back into the bank, or domestic travel, or property, or…;
- The ‘Wealth Effect’: if people feel wealthier (higher share prices, booming property market, media headlines, more money in the bank), they are more likely to spend;
- Australian economy bouncing back: economists are saying that our first recession in 29 years will end abruptly and rebound strongly in 2021, which also feeds the property market;
- Historically low interest rates: the Reserve Bank reduced their cash rate (the rate they lend to banks) to 0.1% in November 2020, and is suggesting they could stay this low through to 2023 and beyond. This makes home loans very cheap, with some banks offering them at less than 2% interest rates.
- Fear of missing out (FOMO): a perfectly natural human reaction is to not want to miss out on a rising market – get in now before things are priced too high. Often, people buy in a rising market and sell in a falling market. The opposite of what they should do? Timing the bottom is hard, but most people seem to agree that we are well past the bottom now.
- China continues to grow: as goes China, so goes Australia. China rebounded the fastest from the pandemic, shutting down early, and its economy has grown strongly. Their government wants to see this continue, as they see ‘China on the rise’ and the ‘Asian Century.’
- High commodity prices for mining and agriculture: Australian products are earning good returns overseas. The balance of payments (exports minus imports) has risen to a $14.5 billion surplus. Australia was running trade deficits as recently as 2017. Other countries – such as Brazil – have had their own mining industry interrupted by Covid-19 leading to shutdowns.
Who knows what is going to happen in the future, but most commentators believe these factors are so strong, and ‘baked in’, that the Australian property market is going to continue rising for some time yet, through this year and well into the next.
If it all gets a bit out of control, then the RBA, governments and/or high prices may just calm things down a bit.
However, when asked in a recent property forum how much longer the market would rise, commentator Gavin Hegney said that “fundamentals start a boom market, speculators end it… and we’re a long way from silly yet.”
We shall see…