A new report by KPMG Economics has found the pandemic has caused house prices in Australia to soar, and the effect could last for the next two years until rising mortgage rates and fundamentals of the housing market begin to place pressure back on the market.
KPMG found that while the house prices in most capital cities were due for an upswing at the start of 2020. The momentum was initially stymied by the uncertainty caused by the pandemic and consequent economic downturn. However, the ultra-low interest rates and massive government stimulus reversed the downward trend, giving housing prices a bigger push than originally forecast without the pandemic.
Brendan Rynne, KPMG’s chief economist, said that the soaring prices result from both the increased demand and reduced supply.
“Supply, too, plays a role,” he added. “Our analysis of dwelling approvals in the big cities shows that in Melbourne and Sydney, there are 25,000 and 20,000 respectively fewer houses and units available than would have been the case in a no-COVID scenario.”
The report also forecasts that by the end of 2023, Sydney will lead the real estate market in prices with a predicted 25 percent rise to an average of $1, 244, 000, compared with what would have been a 13 percent to $1, 119, 000. At the same time, Melbourne will rise 24 percent to $904,000, instead of a 19 percent gain to $905,000.
Brisbane’s house prices are also expected to jump by 19 percent to $661,000, rather than a pre-COVID nine percent to $601,000.
Darwin—the only capital where houses prices were modelled to fall had life stayed normal—is predicted to have its prices increase by 6.6 percent.
KMPG also noted that nationwide detached house prices are expected to rise between 4-12 percent and units up to 13 percent higher.
The findings are echoed by a new report by CoreLogic on the housing market performance amid COVID-19- induced lockdowns over the past 15 months.
According to Corelogic, nationwide housing market values had a peak to trough decline of 2.1 percent through 2020, before surging 12.2 percent over the first six months of 2021, with the demand outstripping the advertised supply being the key market dynamics.
However, CoreLogic Head of Research for Australia, Eliza Owen, highlighted the role of government stimulus and institutional support in stabilising the property market.
“A big part of why the housing market didn’t see further value declines was the enormous income support packages provided to households, the role of JobKeeper in maintaining employment relationships, low mortgage rates and mortgage repayment deferrals,” she said.
“In the event of another extended lockdown, the future of housing demand and supply becomes much less certain if that same government and institutional support is not there.”
This is the challenge that may disrupt the upward trajectory of the Sydney property market.
“The key unknown then becomes how long will the current Sydney lockdown actually last,” the report said. “Housing market conditions could be weaker amid an extended lockdown that does not see the same strong institutional response as was seen last year.”
Rich Harvey, the founder of Sydney-based buyer advocacy agency Propertybuyer, remains confident in the market resilience, with the expectation that lockdown won’t last long.
He expects both auction clearance rates and demand will drop during the lockdown period but will resurge after the lift of restrictions. and potentially, there is a chance it could drive prices even higher.
“Listing volumes are extremely tight and will become even tighter during the lockdown, ” he told the Epoch Times on July 15. “This means prices will continue to rise until more supply come on the market. ”
