Australia has been in a precarious situation for the past few weeks. There have been rising infection rates across the Eastern States. The vaccine rollout has slowed dramatically. State-wide lockdowns are frequent and often extended.
The housing market doesn’t seem to care.
In fact, Australia’s housing market will record an historic performance for 2021. The ratings agency Fitch is forecasting the overall market to grow up to 16 percent by year-end. Given the current state of the country, this is nothing short of extraordinary.
Owner-occupier market is all about housing appreciation
There have been three cities (Sydney, Melbourne, Brisbane) that have recorded double digit price growth for the 12 months through to March 2021. The median house price in Sydney has rocketed to $1.3 million. Melbourne follows closely behind with a $1 million median house price.
What is more promising is the potential growth in Australia’s smaller markets. Perth and Adelaide’s median house prices have increased by 4.2 percent and 8.3 percent respectively. I view this as modest, given the considerable upside potential and attractiveness as growth markets.
A notable limiter on future growth in the smaller markets has been the political response to curbing the Covid-19 pandemic. Australia’s management of the virus has been somewhat unique, in that they have enforced strict intra-state lockdowns. While this may prove effective in minimising transmission, it has hampered domestic immigration and population growth in these markets.
Rental market is predicted to outlast owner-occupier growth
While Australia’s two largest markets enjoyed price appreciation, it was the smaller markets that won the rental battle.
Perth, Brisbane and Adelaide recorded the highest annual rental growth across all markets, for both houses and apartments. Perth’s rental yield appreciation was particularly strong, recording 14.7 and 14.1 percent growth in housing and apartment rental yields.
I believe the rental market will outlast the owner-occupier market for a few reasons. Firstly, the virus is not under control. With a nation divided on everything from management to vaccinations, and the ever-present risk of prolonged lockdowns, homeowners may grow uncertain on timing their sale. This is evidenced by the fact that there is a slowing rate of property price growth in some capital markets.
Secondly, we know that residential construction isn’t the answer for homebuyers. As I noted previously, there are substantial wait times on new construction projects. Not to mention that there is serious inflation risk in the residential construction market, given everything from labour to materials have risen in price due to pandemic-driven supply issues.
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Australia’s housing market has performed exceptionally well during a very uncertain time period. However, extended lockdown periods, uneasy sentiment and significant construction delays may signal a downward change in the market.
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.