February 28, 2021 by Dymphna

5 reasons why this boom is different

While the price outlook is the same, this boom is different.

How is this boom different? Let me count the ways.

There doesn’t seem to be any doubt now that the boom is on. Pretty much every economist in the country is calling it now.

But, this is different from the booms we’ve seen in the past.

So let me give you the five key differences

1. Investors following owner-occupiers

In recent booms, all the way back to 2003, it was really investors in the drivers seat, with investor demand being the key thing driving prices higher.

That’s not the case this time, with the pick up in demand largely an owner-occupier story. In fact, investors have been conspicuously absent. You can see that in the finance approvals data, which is very much an owner-occupier story, and in large part drive by a surge in first home buying.

CoreLogic’s Tim Lawless notes that at the peak in 2015, property investors made up about 46 per cent of all new mortgage lending. Today, investors account for just 23 per cent.

Lawless says that this might be due to banks’ tighter credit polices around interest-only lending, and softer conditions in the apartment market that many investors favour.

“Weaker rental demand, especially in the investment enclaves of Melbourne and Sydney’s inner-city unit markets, is likely a significant disincentive for investors,” Lawless says.

That said, it may all be changing. REA’s latest Property Outlook Report notes a sharp increase in investor inquiry at the end of 2020, which has likely continued into the early part of the year:

2. Not population driven.

Another unusual feature of the current property boom is that it is happening in the middle of the slowest population growth since the First World War, largely on the back of a collapse in immigration, which has turned negative for the first time in like forever:

I expect this is going to be having a localised impact, particularly on immigration hotspots in Sydney and Melbourne, with the impact being offset by cheaper rates elsewhere.

3. Not driven by Sydney and Melbourne

Another difference this time around is that the boom in prices is being led by the smaller major capital cities of Perth and Brisbane. This is a stark contrast from recent booms, which were driven overwhelmingly by Sydney and Melbourne:

As I said, this is largely because Sydney and Melbourne, and particularly their high-rise unit markets were more dependent on immigration, which has dried up.

4. Regions are leading the way

One of the things we’re seeing is an exodus from the big cities, as people get out of dodge.

That’s driving the biggest migration outflows in a generation:

And that, in turn, is driving our regional property markets. Price growth in the regions is now three times the capitals, and that’s a very unusual way to start a boom.

5. Very little drawdown in months prior

Finally, just to round it out, this boom was not preceded by any meaningful downturn in prices. Things were a bit soft on the back of the APRA restritions from 2016 onwards, but our property markets were already accelerating before Covid stopped them in their tracks.

So there’s no” correction from the lows” at play.

Anyway, hopefully that gives you a bit of nuance. This time it really is different.