The Australian property market has seen a dramatic change in its dynamics over the past two years. Most of the current house price spike can be attributed to the historically low interest rates set by the central bank at the start of the pandemic. While housing demand has been strong, underlying supply constraints have been a lingering issue that is fueling price pressures in the housing market.
Changing supply and demand dynamics have somewhat altered the fundamental structure of the Australian property market. In the given scenario, it seems imperative to understand what the pandemic means for the Australian property market.
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Here is a list of factors highlighted by property consultant CoreLogic in its latest report, which explains how the Australian property market has transformed since the start of the pandemic:
Improvement in the house price index
The national home value index initially posted a slight decline when the pandemic hit. However, the index climbed rapidly from January 2021, marking a jump of 24.6% between the end of March 2020 and February 2022.
The real estate consultant pointed out that low interest rates, high household savings, government subsidies and a sharp reduction in housing supply have contributed to the surge in prices seen in the sector. The median value of Australian homes increased from AU$173,805 to AU$728,034 in February 2022.
2. First-time buyers have taken over
According to the property consultant, the Australian property market has seen an increase in the proportion of first-time home buyers over the past two years. In market conditions favorable to first-time buyers, many private individuals who did not own a house decided to enter the market.
Recent data from the Australian Bureau of Statistics (ABS) showed that the number of mortgages granted to first-time home buyers increased between 2017 and 2019. As the pandemic ensued, the HomeBuilder program gave a new impetus to their movement, alongside the first home loan deposit program. and other state subsidies and stamp duty benefits.
3. Rents continue to rise
According to the real estate consultant’s rental value index, rental value jumped 11.8% from the end of March 2020 to February 2022. The recent rise in rental rates is a consequence of the rapid pace of house prices.
As rental services like Airbnb have become more popular, rental supply has shrunk in the economy. This shift from rental housing to tourists has aggravated the country’s already insufficient supply of rental housing. However, gross rental yields have declined as they form part of the purchase price of a property, which has been rising rapidly since March 2020.
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4. Mortgage lending hit record high
The almost unbelievable increase in mortgage lending over the past two years is largely due to one factor: historically low interest rates. The official target for the cash rate was set at 10 basis points in November 2020 and has not changed since.
The ABS data further confirms the chilling observation that new finance borrowed for the purchase of property continued to reach record highs through January 2022 at A$33.7 billion. While buyers have used the low interest payments, the high overall cost of their homes has raised affordability concerns. Concerns about affordability have become more pronounced, given that household incomes have not risen as much as soaring house prices.
5. Increased gap between the value of the house and that of the unit
Interestingly, the gap between house and dwelling values has widened significantly due to recent factors. Investors preferring units to single-detached homes were lower during the high demand phase. Additionally, as individuals found solace within the confines of their homes during lockdowns, owning a separate home became their top priority.
The latest data from the property consultant suggests that the median home value in Australia has reached 29.8% above the Australian median unit value.
6. Migration to regional spaces
More and more people have decided to head to the regions as remote working has become a common norm during the pandemic. A corresponding slowdown has been seen in the number of people moving to cities.
Across all regions, home values have increased by 40% since March 2020, while home values in capital cities have increased by around 21%.
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