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5 ways COVID-19 has affected the property market

By ,| 4 min read

The COVID-19 pandemic has played a significant role in shaping the Australian property market, with statewide lockdowns, supply chain disruptions and an economic downturn impacting dwelling values and interest rates.

In this article, we examine 5 ways COVID-19 has impacted the Australian housing market and how things are tracking on the path to recovery.

An upsurge in property prices

At the start of the pandemic in early 2020, the property market experienced a temporary decline in housing values.

Residential property sales fell by a significant 40% between March and April 2020 and on average, property values declined 2.1% in the 6 months between April and September 2020.

However, the last quarter of 2020 witnessed a surprising uplift, ending the year with almost 8% more sales than the year prior. This sudden growth can be attributed to:

In the two years from March 2020 to February 2022, housing values increased by 24.6%.

As of February 2022, the combined value of Australian real estate was estimated to be $9.8 trillion, $2.6 trillion higher than what it was at the beginning of COVID-19.

The median Australian dwelling value has increased from $554,229 at the beginning of the pandemic to $728,034 as of the start of 2022.

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Property listings dropped to new lows

We saw a slowdown of new property listings on the market through the majority of 2020. Supply levels were unable to keep pace with growing buyer demand throughout the year, turning many areas around Australia into a seller’s market.

Despite the lower number of listings, demand continued to grow through 2020, with 8% higher sales throughout the year than the previous year.

We did see a brief increase in property listings from September through December 2020, with listings peaking in November at 165,000 properties for sale. However, this number was 18% lower than the same period the year prior and 22% below the five year average for that time of year.

Overall, we ended 2020 with 21% fewer listings than in 2019.

Although in 2021 we witnessed a struggle for home buyers in a seller’s market, the increasing number of listings as we enter the second quarter of 2022 might create a more equal opportunity for buyers moving forward.

An influx of first home buyers

In an effort to alleviate pressure on the property market caused by the pandemic, the government introduced new incentives to support first home buyers in securing their first property.

Housing activity among first home buyers increased significantly following the introduction of the HomeBuilder Grant in June 2020. This grant encouraged eligible owner-occupiers, including first home buyers, to buy or build a new home.

The HomeBuilder Grant provided $15,000 to eligible contracts entered into from January 2021 until 31 March 2021 and $25,000 for eligible contracts entered into from 4 June 2020 until 31 December 2020. It is no longer available in 2022.

This initiative, in addition to other existing first home buyer grants and concessions, saw a peak in first home buyer activity in January 2021. This has since dropped off due to decreasing housing affordability.

Still, the number of home loans to first home buyers at 10,964 as of January 2022 outnumbers the decade average of 8,682.

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Housing debt reached new heights

With COVID-19 affecting not only the Australian economy, but the economy on a global scale, we saw the RBA’s official cash rate hit a record low at 10 basis points in November 2020. This followed two other rate cuts in March 2020 in response to COVID-19.

The last time we saw a cash rate hike was in November 2010, when it rose by 25 basis points to 4.75%.

This significant drop in the cash rate enabled more borrowers to take out loans to take advantage of low mortgage rates and debt costs.

Data shows that the ratio of housing debt to household income was at a record high 140.5% through the third quarter of 2021, up from 139.2% in March 2020.

As of January 2022, housing debt sits at over $2 trillion. In the month of January alone, housing debt grew by $33.7 billion.

In 2021, we also saw a sizable increase in rental values, reaching their highest level since 2008.

At the start of the pandemic in March of 2020, rental values experienced a minor drop of 0.8% through to August 2020 before picking back up again.

Since the first lockdown in March, median advertised rental prices increased from $440 to $470 per week.

The era of ‘tree and sea’ change

Australians experienced several lockdowns across states in an effort to prevent the spread of COVID-19, beginning in March 2020. As a result, many companies started to trial remote working as a temporary measure.

According to the Australian Bureau of Statistics, prior to COVID-19, working from home had only been increasing on average by 1% every 2 years.

Results from August 2021 show that the 8.4% of employees working from home had jumped 32.3%, resulting in a total of 40.6% of employed people regularly working from home.

Two years on, many businesses have decided to adapt to a remote, hybrid or flexible working approach.

As a result, we’ve begun to see a ‘tree and sea’ change, with an increasing number of workers moving away from the city and metropolitan suburbs to more regional and coastal areas.

According to Domain, an increasing number of searches related to keywords like ‘rural’, ‘beach’ and ‘farm’ may be key indicators of this shift to more regional areas. The move away from busy cities can also be recognised in growing searches for ‘garden’ and ‘courtyard’. Since March 2020, regional dwelling values have seen an incredible growth of almost 40%.

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How is the Australian property market, 2 years on?

It’s been 2 years since the COVID-19 pandemic started impacting the property market and 2 years on, the Australian economy has started to recover.

Although the official cash rate has been maintained at a steady 10 basis points, we’ve started to see banks and lenders increase their interest rates over the past few months.

While we can only predict what will happen to interest rates in the future, economists expect changes to be gradual and don’t foresee the RBA increasing the official cash rate until 2023.

With the recent flooding in NSW and Queensland, the development of the Russia-Ukraine war and the ongoing effects of COVID-19, we may be entering into a volatile time for the economy.

As such, while the Australian economy is currently on the mend, we’ll have to wait and see how things progress moving forward.

If you have any questions regarding your home loan and want to find out how rate increases could affect your repayments, reach out to a Home Loan Specialist for support.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: property prices, rba cash rate, interest rate, home loan, first home buyer

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