The Uncommon Case of COVID recession - House Prices Goes Up Again

You would think that house prices should fall during recessions because that’s exactly what happened years back. During the 1900 recession, home values in Sydney and Melbourne dropped 10% - and at that time we are talking about a much higher number of jobless people and super high-interest rates.

Source: Brisbane Times


Today, you would expect depressing home values as people just sell below market value and do not have the capacity to pay rent due to job loss - But NO.


Quoting the below report and standpoint of an economist from an article of Brisbane Times a few days ago:


In fact, despite rising joblessness during COVID-19, overall household income growth has actually increased. Our national savings rate is up, not down.
We are not the only economy to witness this phenomenon. In recession- and COVID-ravaged London, average home values have topped £500,000 ($886,000) for the first time, rising 9.7 per cent over the year to November thanks to pent-up demand and stamp duty relief.
In fact, says economist Saul Eslake, compared to the property boom seen in other countries during the pandemic, Australia’s rebound has been quite modest, so far.
“I think it’s important to view what’s happening to Australian house prices in a global context,” he explains. “Residential property prices have been remarkably resilient in most countries thanks to record low interest rates and ample supply of credit.”

Globally since Feb of 2020 - Australia is still considered slow to rise in prices compared to countries like Canada, US, UK, Singapore, HongKong, Norway and Germany. Even New Zealand has gone up at 13.5%!


Is it the same though on all Australian states? NO.


As the report and article stated, the trend towards working from home saw regional home values jump 6.9 per cent in 2020, compared to a 2 per cent gain in capital city prices, according to CoreLogic data.


In regional NSW, home prices jumped 8.3 per cent. In regional Victoria, they were up 5.6 per cent.

Second-tier capital cities have also experienced a boom, with Adelaide house prices up 5.9 per cent, Hobart 6.1 per cent, Canberra 7.5 per cent and Darwin 9 per cent.

Working from home has eliminated the drawback of onerous commutes if buyers move further away from CBD locations in search of lower prices. Meanwhile, time cooped up with families at home has driven a preference for detached homes over smaller apartments – reversing a decades-long trend.

While capital city detached house values rose 2.6 per cent last year, unit values held steady – rising just 0.2 per cent. How long this trend towards decentralisation lasts will depend heavily on employer and employee attitudes to working from home post-COVID.

Higher prices - is it because of lower interest rates? In essence, a lower interest rate allows borrowers to service a larger loan from a given level of income. During these times, Restrictions on lending have also been eased. Last year, the Reserve Bank stated that interest rates would not rise for three years and the Morrison government relaxed responsible lending rules for banks.


Westpac chief economist Bill Evans thinks ultra-low interest rates, combined with the government’s focus on growing the economy and desire not to over-regulate bank lending, will create a very, very positive environment for the housing market.


Here are a couple more points:

  • Melbourne home values will rise 12 per cent over the two years following this December quarter. Sydney will be up 14 per cent and Brisbane 20 per cent.

  • According to CoreLogic, Sydney home values – including units and detached houses – still need to regain another 3.9 per cent to surpass their July 2017 peak

  • Melbourne values are still 4.1 percent below their March 2020 peak

  • Much of the demand is coming from first-time buyers, who appear to perceive an opportunity to get into the housing market without facing the competition from cashed-up immigrants or negatively geared domestic investors

At PIP we specialise in South East Queensland and Central New South Wales as we have seen these areas continue to thrive and show low rental vacancies and great property price increases due to migration from the South.


Do you have money in the bank or shares? Would you like to convert that into bricks and mortar that will deliver 5 to 7% gross return with residential tenants? If so call or email and we can arrange a time to discuss what we do and how we can help you.

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