The unreachable Australian dream

Mar 5, 2021 | Finance, YOUR LIFE, YOUR LIFESTYLE

Who thought house prices were going to fall due to the economic fallout from the COVID-19 pandemic? Our hand is up! Unfortunately for us, and for those wanting to enter the housing market for the first time, we were wrong. This article discusses the continued increase in property values and why the “Australian Dream” may be unreachable.

As the economic effects of the coronavirus pandemic took hold in early 2020, there were widespread predictions of substantial falls in housing prices. At one extreme CBA estimated that, in its worst-case scenario, home prices could fall 32%. Even a more modest scenario pointed to housing prices falling by 11% over three years.

Such predictions are enough to strike fear into the hearts of existing homeowners, particularly those with mortgages. But for those still waiting to experience the great Australian dream, a drop in property values would provide a foot in the door of home ownership. It would also help people seeking to move up the real estate ladder.

Why the expected decline?

The predictions of a hit to housing prices made perfect sense. Coronavirus threw many thousands of people out of work and many others experienced a drop in income. Normally this would lead to an increase in loan defaults and forced sales, creating a lift in housing supply just as the effective suspension of immigration removed a major source of demand from the property market. More supply, less demand, cheaper housing.

 

Hopes dashed

But the hopes of many intending first homebuyers and up-sizers – at least those with stable incomes – were soon dashed. After dropping by just 2.1% between April and September prices rose during each of the last three months of the year. At 31 December 2020 CoreLogic’s home value index was up 3.0% for the year. Regional areas posted the highest gains (6.9%), but the combined capitals still managed a 2% lift despite the year’s horrors.

 

Why?

Some of the reasons why house prices held up include:

  • Income support. JobKeeper provided an income to many of those who would otherwise have lost their jobs, helping them to maintain mortgage payments and avoiding forced sales.
  • Record low interest rates. Those with good cash flow can afford to borrow more, pushing up prices and squeezing out want-to-be homeowners with less income.
  • Mortgage holidays. Lenders allowed hundreds of thousands of customers who suffered a loss of income to suspend their regular loan repayments for several months. While deferred amounts, plus interest, need to be repaid eventually, they provide valuable breathing space at times of stress.

Economic bounce-back. Getting on top of coronavirus saw economic activity recover more quickly than expected. This helped to boost consumer confidence, including the confidence to borrow at low interest rates.

 

When will the dream be (more) reachable?

Australian home prices have long been amongst the highest in the world. While much lip service is paid to “more affordable” housing, both politicians and central bankers are reluctant to implement policies that would drive down the cost of housing. Indeed, during 2020 the federal government relaxed responsible lending rules, and the RBA cut interest rates to just 0.1%. The result was a surge in borrowing, and while first-time homebuyers made up a significant chunk of those new borrowers, the accompanying rise in prices means many intending buyers were again priced out of the market. The outlook at the beginning of 2021 was that Australia’s decades-long real estate bubble was set to continue.

 

Who can help?

Buying a home is one of the biggest financial decisions you’ll every make. It takes planning and maybe years of effort to achieve, but there are things you can do to let you start bidding sooner rather than later.

Talk to your financial planner about strategies you can use to help you achieve your dream of home ownership.

 

Don’t have a financial adviser? No problem, we can help you with that. Get in touch with Scott Harvey for your financial planning needs and Scott Ayles for your finance and loan needs. Yes, we have 2 Scotts and they are both specialists in their fields. Have a conversation, be heard, be understood. It’s your decision.

If it’s important to you, it’s important to us. 

Book Your
Free Loan Review

Receive a customised review to improve your savings and reduce the amount you are paying.

Related Blog Articles

Using your equity to build wealth

This article explains how equity is accumulated and ways in which you can use some of your equity to build additional wealth. It explains there are risks when using your equity and suggests working with the right professionals to get a desired result. – Using your equity to build wealth.

read more

Property co-ownership: Accessing the property market

This article explains how co-ownership may be the key to help you achieve the “Great Australian Dream” for those struggling to get into the property market. – Could your best friend be the key to getting into the property market?

read more

How high will interest rates go?

The Reserve Bank of Australia have been steadily increase the cash rate since the early half of 2022, but how high will these interest rates go and how quickly will we get there? – How high will interest rates go?

read more

If I was 25 again I would…

If I was 25 again I would… pay extra off my mortgage. If I could find just $100 extra per month – less than the proverbial cup of coffee every day – and added this to my repayments on a $300,000 mortgage with an interest rate of 3.75% per annum over a term of 25...

read more

A history of home loans

This article looks at the history of home loans from the 1970’s to 2022, detailing the rise of inflation and consequent interest rate spikes. It also provides tips and strategies to assist when interest rates rise. – A history of home loans.

read more

Authorised Credit Representative 383415 of IFBA Pty Ltd.  Australian Credit Licence Number 383415.
Disclaimer   |   Privacy Policy