Financial trends in 2021- Property prices

Some interesting points from Richard Whitten of Finder.com.au in his summary of the outlook for property prices in Australia in 2021. Positives for property markets, low-interest rates, and government stimulus offerings for first home buyers. Negatives, low immigration, and unemployment.

In the West, it was clear why housing prices were spiking late in 2020, the border was shut, and being a predominantly big Mining state, east coast workers in WA mines were encouraged to move to WA to continue working and avoid the 14 day quarantine period pre and post swings. It's also partially responsible for the shortage in rentals and the upcoming spike (15% to 30% increase in rents) caused by the Covid limitations on landlords increasing rents under normal business as usual conditions.

Currently, in the West, we have an artificially stimulated immigration issue impacting the housing market. Would the following have an impact on housing demand in WA?:

• All of the miners have relocated to WA?
• The Covid vaccine starts taking effect and the borders open up and Mining workers move back home as they no longer need to perform a 14-day quarantine?
• With a likely limit or total ban on international travel, international immigration should still play no impact on housing demand, are we in the middle of a short term bubble

Then we have the economic factors, in 2020 we had the first national recession for almost 30 years. With Government financial stimulus flowing through the economy via JobKeeper, JobSeeker, and now Job maker plus some one-off stimulus payments for certain Centrelink recipients, the amount of cash flowing through the economy was up by almost 12%. The national savings rate when Victoria was in Lockdown grew from 6% to 19%.

So what did we actually do to fix the recession whilst we were locked up at home?

Whilst small businesses (the life and blood of the economy) had managed to scramble their way through 2020, some businesses blossoming, some going to the wall, and some still scrapping their way along, the dangerous time is approaching. The end of the Government stimulus packages is likely to spell the end for some small and even medium-sized businesses. The flow-on impact is significant as a prolonged period of higher unemployment coupled with zero immigration is one way to definitely put a dampener on housing price growth.

Compound that with a relaxation in the responsible lending laws and we have a very tense couple of years ahead.

Richard Whitten, senior writer, home loans 

What to expect with property prices this year  

The Australian property market in 2021 is looking a lot more positive for most of the country. The latest figures from CoreLogic's December Home Values Index show that, overall, property prices grew 3% over 2020. That time period includes the entirety of the pandemic so far. Every major city in the country saw growth throughout the year except Melbourne, where prices fell 1.3% over the year. But the last few months have seen a strong recovery there too. 

The factors behind this speedy recovery look set to stay in place in 2021 and are the reason this year looks like a strong one for property prices. 

• COVID-19 under control (fingers crossed). With COVID-19 under control (at least for now), real estate markets can grow again. Hopefully, this remains the case in 2021 as we await the vaccine rollout. 
• Low interest rates. Lower rates make it easier to borrow money and have had a strong effect on prices. The low-rate environment is likely to stay through 2021. 
• Government policy. The federal government has put in place several support policies to encourage home buying and building, including the expanded First Home Loan Deposit Scheme and the HomeBuilder grant. This year, the government also plans to loosen lending laws to make home loan approvals easier. While controversial (there will be a greater burden of responsibility on borrowers to make sure they get a suitable loan), easier access to credit will boost prices. In Victoria, big discounts on stamp duty are another win for buyers. 

There are some negative signs that could slow property price growth. Decreased immigration as a result of COVID-19 could lower demand and unemployment remains high as well as the fact that Australia's economic recovery is concentrated among certain sections of the country (older and wealthier people). This uneven recovery and youth unemployment could dampen prices or simply further the divide between those who can afford property and those who can't. 

What to do if you want to enter the property market this year  

If you want to buy a property in 2021, it's a really good idea to look again at your savings and spending habits, draw up a realistic budget and figure out your potential borrowing power. This will give you an idea of how much you may be able to borrow and what your repayments would be. From here, you can start to look at properties within your budget. 

It's also a good idea to check what government support may be available, such as the First Home Loan Deposit Scheme or the HomeBuilder grant if you're considering building. 

If you're looking for some inspiration on where to buy, here are five capital cities that are expected to see property price rises in 2021.