January 18, 2021 by Dymphna

Revealed: what I’m banking on this year

The outlook for property looks stronger every day.

I’ve been saying since October or November that 2021 is going to be a massive year for property.

Do I still believe that?

You betcha!

Let me talk you through it.

First up, the downturn in the Australian property markets was way, WAY smaller than pretty much everyone (including me!) was expecting.

It barely registered.

All told, the Australian median fell about 2% peak to trough. That’s the dotted line on this chart, lays all recent property price falls on top of each other for comparison.

So the property market held up much better than people expected (in the early days some people were talking about falling 40%!!!) In the end, it will go down as one of the shortest and mildest downturns on record.

You can also see that in recent months it has started moving decisively north, and it is very clear where the momentum is headed.

There’s a number of reasons for this, but let’s be honest. The elephant doing all the heavy lifting here is interest rates.

Mortgage lending rates have tanked, particularly for fixed-rate mortgages.

This is because the RBA has stepped into the market and is giving banks access to super-cheap capital, so long as they lend it out to borrowers, which they’re doing through fixed rate mortgages.

This has made mortgage borrowing very attractive.

Investors remained sidelined through most of 2020, but owner-occupiers, particularly first time buyers, got into the market in a big way, with many of them taking advantage of grants for new construction.

However, falling interest rates are also helping out existing mortgage holders, and the household debt burden (debt repayments to household income), has fallen sharply. There’s more money to go around.

That’s put extra money in people’s pockets, and is part of the reason why retail sales are booming right now.

At any rate, on the back of super-cheap mortgages, the mortgage market is heating up again. The annual change in mortgages tends to line up pretty closely with the annual change in house prices, but for the moment, there’s a disconnect. Mortgages are up, but prices are yet to follow.

I don’t expect that to last, and I expect it will be rising house prices that will bring those two back together.

And it’s one of the reasons why I expect to see prices accelerate in 2021, along with large savings stock-piles and an economy returning to form. 

That’s not to say it’s going to be all smooth-sailing. The collapse in immigration remains one of the biggest headwinds for property, with our major immigration centres – Sydney and Melbourne – bearing the brunt of this.

That said, while immigration has been much lower, we haven’t seen it have all that much impact on the market yet, outside of high-rise apartments.

That sector is struggling and will probably continue to struggle. Look at what’s happening in the rental markets for units in Sydney and Melbourne. Ouch.

(But anyone see what’s happening in Perth there? Look out!)

The challenges for this segment aside, the market overall is poised for growth. I’d be expecting double-digit growth this year, with (some) regions to out-perform the capitals, and detached housing to outperform units.

The risks also seem weighted to the upside to me, especially on the policy (easy money) front.

So as glowing as the outlook looks right now, it could even be better.

Now obviously, this isn’t to say you should go out and buy any old rubbish. A deal is still a deal, and you need to buy well.

But the market is going to offer a lot of support for investors this year.

It’s going to be a cracker.

Have fun everyone!