house key in door lock
Source: Pixabay. Property market trends suggest it is difficult for Aussies to own the keys to their own home.
  • Stimulus tends to distort housing demand, long term renting becomes commonplace.
  • Pent up demand may affect the market over most of 2021.
  • Unlikely that a "meaningful" fall in house prices expected.

Healthy lending figures released in January showed real estate in Australia was in a strong position.

As a result of the Federal Government’s HomeBuilder scheme, and record low interest rates, both homes and housing figures are on the up.

Sadly that’s merely the cherry atop an underwhelming cake – the future of the Australian home-owning dream looking distant.

With many still wanting home-ownership, why is long-term renting a real future for so many Australians?

What’s happening right now?

Associate Professor Sarantis Tsiaplias from the University of Melbourne wrote in Pursuit that the housing market “defied expectations for 2020”.

“In July 2020, the number of new home loans provided to first home buyers exceeded 10,000 for the first time in ten years.”

The healthy figures continued into November, A Prof Tsiaplias writing “new home loans to first home buyers exceeding 14,000 in November.”

Longer-term, however, the trend is likely to be renting for the many.

“The pace of house price appreciation has been inordinately sharp over the past few years, outpacing income growth and making housing less affordable – especially for lower-to-moderate income households.”

A Prof Tsiaplias also said that the house price-to-rent ratio is a metric for how the housing market is fairing compared to rental markets.

The meaning behind a ratio: “the higher the ratio the more house prices are outpacing rents.”

The low interest rates are also expected to create a two-speed housing market, those in expensive areas more sensitive to changes in interest rate.

But those grants are helping, right?

The Property Tribune asked A Prof Tsiaplias a few questions about what’s going on in the market.

Q: What are the long term effects of the government (state or federal) stimulus into building new houses?

A: This type of stimulus tends to distort demand for housing, typically pushing up the prices of both existing and new dwellings. We have seen this pan out in the past few months and this will likely continue in the short to medium term. Longer term, higher house prices will price out an increasingly larger number of lower to middle income households, resulting in a greater proportion of renter households. Since the mid-90s, the proportion of renters has risen from below 20 per cent to approximately 30 per cent in major capital cities. This trend will likely continue to grow going forward.

Is the pent up demand gone yet?

Q: How much does pent up demand affect the market, and will there be consequences in the long run?

A: Pent up demand will have significant effects in the short term. There will probably be a build-up of buyers and a resulting excess demand that will persist over most of 2021. Longer term, the effects of pent-up demand will fizzle out. However, the impetus associated with a prolonged period of very low interest rates will likely result in continued house price growth for the next few years.

Will a downward correction happen?

Q: With the “expectation of a significant downward correction in house prices are unlikely to be realised”, would you be able to say how many years that would be the case before things ‘improve’?

A: While interest rates remain low, it is unlikely that we will see a meaningful fall in house prices. The latest data on house price sentiment suggests that consumers expect house prices to rise over the next year. In fact, given the Reserve Bank’s guidance of a prolonged period of low rates, house prices will more likely than not continue to grow over the next few years notwithstanding lower population growth.

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