Three reasons our property markets have started 2021 with a bang!

By Brett Warren | 10 Feb 2021

Are you, or someone you know looking to buy a property this year?

Statistics suggest that more than two thirds of Australians believe NOW is a good time to buy real estate.

So, chances are it is either you, a friend, a family member or even all of the above.

Of course it will be another few months before what our team at Metropole are currently seeing on the ground will eventually filter through to data companies and the media.

Sydney has started with a 90%+ auction clearance rate, Brisbane has open homes with lines 100 metres long and momentum in Melbourne is also building, as it breaks free of Lockdowns.

But why has 2021 started on such a rush?

Here are my thoughts…

Greater disposable income

Clearly our spending has been down on many fronts.

According statistics released by statista, Australians spent almost $65billlion in overseas travel in the year before we were locked down.

There is clearly going to be significantly less spent overseas in 2020 and 2021, with overseas travel slated for a return in early 2022 at this stage.

Note: the years in the chart above are for the 12 months finishing 2019 and the 12 months ending in March 2020 before Covid closed our borders

So where are the missing billions going?

It appears a big part of it has been either saving or taking the opportunity to pay down debt.

The RBA suggests $4.2billion has been wiped off the national credit card debt, while ABS highlights our household savings ratio surged from 6% to more than 19% to round out 2020.

Obviously, those Aussies who take a regular overseas trip will have additional disposable income to spend.

This is starting to show out as new car sales surge and our property markets heat up.

In some cases, the additional income may be a prompt to buy a new home or upgrade their existing place of residence.

Others now have the ability to enter the property market as an investor or add additional assets to their portfolio.

It is certainly looking that way for Owner Occupiers, up sharply, with investors just beginning to return to the market.

Consumer confidence

The upturn in finance approvals would likely not be happening without some level of confidence in our economy and property market.

This is highlightes by Roy Morgan Research, as Consumer Confidence hits 14 month highs and surges past pre Coronavirus levels.

As we come out of Lockdowns around the country and return to some normality, this is understandable.

But there is also far less doom and gloom from the media and much of the doomsday forecasts and predictions have not eventuated.

There was also that dreaded “mortgage cliff” the property pessimists kept talking about, which is becoming less of a concern as the weeks go buy and people begin to repay their loans.

Latest figures form APRA suggest that loan deferrals have fallen from a high of more than 10%, to be back down to less than 2% in December.

Unemployment also never reached the predicted 10% - 20%, as people are return to work and job ads start to increase.

All very good reasons to have a level of comfort and greater confidence heading into 2021.

In fact, the falling level of potential bad debts is giving the banks confidence to lend more freely.

Interest rates

Building up even more confidence has been record low interest rates, with a cash rate of almost 0%.

Amazingly, most home buyers have access to a home loan with a 1 in front of it.

I recently reviewed a case study form back in 2010 and noted an interest rate of 7.25%, those days are long behind us.

There is talk of major issues once Job Keeper and Job Seeker has come to an end, but with the amount of buyer demand in A Grade locations of our bigger capital cities, concern is easing.

If you have a steady job, a regular income and have been relatively unaffected by COVID, there has never been a cheaper time to borrow money.

Buyers probably also have more certainty than ever with interest rates going nowhere soon!

Summary

The market has certainly shifted a gear as we head into 2021.

With data lag, it may be a while before the general public and media pick up on this shift.

Digging a little deeper and it appears to be three main factors that are driving this increase demand for property.

  1. An increase in disposable income due to things like overseas travel have seen people relocate their spending and paying down debt
  2. With the bigger COVID issues now under control, consumer confidence has also reached 14-month highs and growing.
  3. Perhaps the biggest drawcard however, is interest rates with owner occupiers having access to the cheapest money on record.

These unprecedented lows have seen owner occupiers upgrading or relocating in record numbers, with certainty and confidence in the short to medium term environment.

Investors are also starting to work their way into the markets and this will continue as our economy continues to strengthen.

Prepare yourself, we are in for another incredible year, perhaps this time for a different reason though.

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Brett Warren is a director of Metropole Properties in Brisbane and uses his 18 plus years property investment experience and economics education to advise clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.



Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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