How has the Australian Real Estate Survived?

2020 has been a devastating year for many households and small businesses. As Australia moves through its first recession in over 28 years, ABS payroll data suggests wages are down 4.3% between Australia’s 100th case of COVID-19 on March 14, and October 31st. In the same period, payroll jobs decreased by 3.0%.

Source: RBA, Corelogic


At the onset of the pandemic, the consensus seemed to be building that the national decline in property values could reach 10%, with worst-case scenarios suggesting prices could fall by as much as a third.


But between March and October, Australian home values have fallen just 1.7%. In fact, October marked a 0.4% increase in values, with the trend over November suggesting a further acceleration in growth.


Although housing values are once again rising, it’s important to highlight that Melbourne housing values remain around 5.4% below their recent high, and Sydney housing values are still 4.8% below their 2017 peak. Values in Perth and Darwin are more than 20% below their 2014 peaks, while the remaining capital cities have seen housing values move to new record highs through the COVID period.


As Australia enters the start of a gradual recovery from the largest economic downturn since the 1930’s, how can this be reconciled with such a mild downturn in property values? A few factors that may explain the relative stability in housing, at a high level, are put forward below.


Low-cost debt

The cost of borrowing money is probably one of the most important factors influencing property values. Over 2020, the RBA has reduced the official cash rate target (which influences lending rates) by 65 basis points, to 0.1%.


In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record-low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8% increase in property values over the following two years.

Source: RBA, Corelogic


In fact, it is not uncommon for housing markets to increase in value during negative economic shocks, or periods of rising unemployment. This is because the monetary response to rising unemployment and falling consumption is often to lower the price of debt. Those that still have a secure income during these shocks may be more inclined to borrow and buy as a result.


Give us a call and make a plan to build Financial Independence and Retire Early (FIRE) with Positive Income Properties. Find out how we can help you do this.

ALTERNATIVELY YOU CAN FILL

IN THE FOLLOWING CONTACT FORM:

TO CONTACT PLEASE CALL OR EMAIL US:

M 0418 792 215    

A  P.O. Box 1433 Mooloolaba Qld 4557

I'm a paragraph. Click here to add your own text and edit me. It's easy.

Disclaimer:

The information in this website and the links provided are for general information only and should not be taken as constituting professional advice from the website owner - 

FIRE is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.

FIRE is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.

© 2019 By Positive Income Properties