When it comes to uncertain times in Australia’s property market, 2020 will surely stand out for decades to come. As Australia falls into a recession we’re all very much heading into the unknown. What makes this recession unique is the cause. Previous economic downturns were financially lead. This time around, the downturn is caused by a global health issue.
Another important factor to take into consideration is how the Federal Government has handled the situation. Jobseeker and jobkeeper payments have certainly helped to soften the financial blow for Australians.
This time around the banks have helped out too with initiatives such as allowing mortgage deferments. With so many changes to the housing market this year, many people are scratching their heads and asking, is now a good time to buy property?
Property investment expert, Mark Ribarsky has the following to say on Australia’s recovery: “This time around things are very different from a recession preceded by economic excess and speculation. Because of this and based on the predicted pace of the post-recession recovery, I would expect the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the Global Financial Crisis.”
Staying updated on COVID-19’s effect on the housing market could be one of the best ways to predict the best time to buy. As it’s been said many times before, this is a once-in-a-hundred-year event. There isn’t a lot of previous data to reference when it comes to predicting what things will be like in the next six months or year.
Wondering if now is a good time to buy property? Ask the real estate experts from Vendor Advocate Melb for guidance.
How are house prices being affected right now?
We are heading into a recession right now that’s caused consumer and business confidence to tank. Restrictions on inspections and auctions have also made it hard for buyers to gain insight or confidence in the properties they’re looking at. Another factor to consider is the reduction in immigration numbers this year. Australia’s closed borders to immigrants have caused housing demands to decrease by 80,000 dwellings since March.
Mortgage rates in Australia have sunken to an incredibly low 2 per cent. So those in stable jobs with a decent deposit saved up should be in a very safe position to buy. If you have the luxury of choosing a fixed rate mortgage, you could lock it in for as low as 3.72% for 30 years. Clearance rates for Sydney and Melbourne have fallen from 77% in February to as low as 63%.
Along with low clearance rates, houses have been topping-out with final bids sitting well below reserve prices. House values in Sydney have slid down to a cumulative 1.2% since April. To give you an idea of how Melbourne has changed since March, Melbourne dwelling values are now down 2.3%.
Looking at the months ahead
Anyone trying to figure out when to buy usually looks at how the situation is progressing. Is it better to buy now or see if things get worse? Will issues with the containment of the Covid-19 further drive down house prices?
The most telling sign we have at the moment is the state of restrictions. Stage 4 has essentially closed a large percentage of businesses in Victoria and ramped up unemployment numbers again this year.
One of the most noticeable impacts on the housing market is a lower inventory. Tens of thousands of houses have been withdrawn from the housing market. With fewer houses on the market, this could drive up the prices of houses with increased interest and more bidders during auctions.
Restrictions will ease once daily cases go down again. When restrictions ease, businesses can reopen and unemployment levels will start to go down again. Some countries have experienced second and even third waves of coronavirus spreading. So it may be a very long time until things go back to normal again.
While unemployment in Australia will rise and businesses will not reopen, experts are still predicting the economy will rebound in the fourth quarter of this year. This recovery could spark a storm of new houses on the market along with eager buyers. But with overseas travel essentially cancelled for 2020, we may not see that extra boost from overseas investors until halfway through 2021.
Long term predictions
Population growth has always had a massive impact on the demand for housing in Australia. We currently enjoy an average growth of 360,000 people per annum. To keep up with this growth, 170-180,000 new dwellings need to be built across the county to accommodate them. These dwellings are primarily created in new housing developments of outer suburbs.
Over the last few years, 60% of our population growth has been dependent on immigration. So it looks like the closure of our borders may also slow down the development of new housing. This could, in turn, cause an undersupply of houses from suburbs in favourable locations such as those near capital cities.
Due to affordability issues, Australia’s percentage of renters is likely to increase again. Soon 40% of the population will be renters. How does this affect you as a property investor? The good news is that it won’t be so hard to find new tenants. With an oversupply of potential tenants, buying a house solely for the purpose of renting out will be a safe investment.
So is now a good time to buy property for myself?
It all depends on your personal circumstances. Lots of things need to fall in place at once for you. Consider your employment situation. How did your job’s industry fare during this period of time? Have you and your partner relied on jobseeker or jobkeeper payments? Banks may not be so willing to give you a loan based on your job security.
It also depends on the purpose of your property purchase. Are you buying an investment property or will you be an owner-occupier? Is it your first house? You may be eligible for the first home buyers scheme. Make sure interest rates are favourable before bidding on houses. If you’re after an investment property, check there’s a healthy pool of potential tenants in the area.
If you’re looking to buy now, consider your long-term perspective. Make sure that you’re prepared for higher interest rates. Consider supply and demand in the housing market. Will you struggle to bid on houses when demand increases or the current recession ends? Even local economic trends can have an impact.
So do your research, tick all your essential finance targets, and get organised. The more prepared you are, the more likely it is you’ll make the right decision when auction day rolls around.
Still not sure if now is a good time to sell? Get in touch with Vendor Advocate Melbourne for advice.
