Australian property prices are set to rise strongly this year as enthusiastic buyers and record low borrowing costs fuel the market, a leading housing economist predicts.
Releasing the inaugural REA Insights Home Price Index Report, realestate.com.au director of economic research Cameron Kusher said there has been a strong pick-up in the property market over the past year.
“There’s going to be strong price increases for the rest of this year and it could be as much as double-digit growth through 2021,” Mr Kusher said.
The REA Insights Home Price Index Report, released on Tuesday, showed national dwelling prices increased by 0.4% in February.
Property prices rose in each major region in February, with the largest rises in Darwin (0.9%) and regional Victoria (0.5%). Brisbane and regional Queensland recorded the smallest growth, both at 0.1%.
Dwelling prices have increased by 5.9% over the past year.
Mr Kusher said enthusiastic buyers, some driven by a fear of missing out, and record low borrowing costs were pushing prices higher amid a low volume of stock for sale.
“Property prices have clearly responded positively to state and federal government housing market stimulus along with the lowest borrowing costs on record,” Mr Kusher said.
“There’s also been a sharp rebound in sales volumes and mortgage borrowing along with consistently record-high volumes of Australians searching for properties on realestate.com.au.”
Mr Kusher said the REA Insights Buyer Demand Index, which measures the number of people who are serious about buying on realestate.com.au, was also at a record high.
“Clearly there’s a lot of interest in the market out there that is translating into sales, but there’s still a lot of buyers out there,” he said.
“There’s this sense that the market is moving quite quickly, that if you don’t get the property now and you have to wait a few more months then you’re going to be paying more for that property. There’s definitely a bit of a fear of missing out.”
Record low interest rates and government incentives like HomeBuilder, which finishes at the end of March, and first-home buyer grants and discounts are fuelling the housing market as the Reserve Bank of Australia leaves rates on hold for the next few years.
The RBA, which holds its monthly board meeting on Tuesday, does not plan to raise the cash rate from the current 0.1% until 2024 at the earliest.
“Borrowers can now access fixed rate mortgages from major lenders for less than 2% and clearly many are doing just that,” Mr Kusher said.
He said low borrowing costs along with increased savings and restrictions on overseas travel have increased demand for new mortgages. New home loan commitments rose 10.5% to a record $28.8 billion in January, according to Australian Bureau of Statistics figures released on Monday.
A number of economists have forecast strong growth in house prices over the next two years. Westpac economists said the housing market is moving into a sustained boom, predicting dwelling prices will rise by 20% in total over 2021 and 2022.
Releasing the latest REA Insights Property Outlook Report last week, realestate.com.au chief economist Nerida Conisbee predicted 2021 will be “a boom year” and feature a sharp acceleration in pricing.
National dwelling prices rose by 1.8% over the three months to February, which Mr Kusher said represented a slowdown in the quarterly rate of growth.
City markets are making a comeback
Prices in regional markets have grown by 9.6% over the past year, double the growth in the capital cities (4.8%), as the coronavirus pandemic drives a lifestyle shift.
But Mr Kusher noted price growth in the capital cities has been stronger than in regional areas over the past two months.
In February, capital city prices rose 0.4% while regional prices were up 0.3%.
Mr Kusher said the lure of regional Australia with its lower property prices and desirable lifestyle remains strong, but that could change as COVID-19 vaccines are rolled out.
“There’s light at the end of the tunnel as vaccines are rolled out, businesses are going to be reopening, so maybe the lure of regional Australia won’t be as strong as things start to get back to normal.”
Looking at prices over the three months to February, regional Australia recorded stronger growth of 1.9% compared to the combined capital cities’ 1.7%.
Across Australia, house prices have outperformed unit prices with apartment markets impacted by low levels of investor activity during 2020 as well as the poor performance of rental markets.
House prices have grown at 6.9% over the past year, outstripping the 2.1% increase for units.
Wind-down of support a potential bump in the road
“The main potential bump in the road to recovery will be what happens as government and banking support is wound down over the coming months,” he said.
“While the share of mortgages on deferral remains low, the removal of JobKeeper and JobSeeker may lead to an increase in forced property sales, and it will be something to monitor.
“At this stage, the expectation is that any increase in forced sales will be quite small and prices are likely to keep rising.”
The post Possible “double digit” price growth in 2021 as buyers scramble appeared first on realestate.com.au.