The unreachable Australian dream
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.
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.
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.
Free Loan Review
Receive a customised review to improve your savings and reduce the amount you are paying.
Related Blog Articles
When the COVID-19 pandemic struck in 2020 and Australians everywhere were forced to stop work and stay at home, the big banks reached out to affected customers offering to suspend their loan repayments and provide some much-needed financial relief. The true cost of deferring your home loan
With over 4.4 million Australians living with a disability, most families either have a family member with a disability or know of a family supporting a disabled loved one. Financial planning for a family member with a disability
NewAccess for Small Business Owners is a free and confidential mental health program developed by Beyond Blue to give small business owners the support they need. Whether you’re just feeling stressed, or completely overwhelmed about everyday life issues, they can help.
How many times have you downloaded a new app or connected to free Wi-Fi and agreed to the terms and conditions without giving them a second glance? In your rush to gain access to the must-have service you may end up agreeing to scrub public portaloos. Before you sign…
Ready to make the leap from renting to buying a home? Well, before you begin the search for your perfect home there are lots of questions to find answers to. Here are some of the big ones. Everything you wanted to know about buying a home