The booming market that surprised everyone

The resurgent Australian property market is good news for sellers and the economy – and potentially for those looking to build wealth through undervalued property. 

Imagine for a moment that you have access to a time machine and can travel back exactly a year into the past. You step out of your capsule in Sydney or Melbourne in April 2020 and tell a group of Australians that in 12 months’ time the property market will be reaching new records, with houses in many markets snapped up in days. There’s a very good chance you would be laughed at.

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At the height of the COVID-19 outbreak, the consensus among the nation’s major banks and economic experts was that property prices would plunge 20 to 30 percent in 2021 and 2022. Even as late as the end of 2020, forecasters were making only conservatively positive predictions about the housing market, cautiously pointing to weak growth in 2021.

But 2021 has refused to follow the script. 

Figures from property sector analyst CoreLogic’s National Home Value Index show there was a 2.8 per cent rise in housing values in the month of March 2021 – the fastest rate of appreciation since October 1988. Sydney prices recorded a hefty 3.7 per cent increase over the month, Hobart grew by 3.3 percent, and in Canberra, sale prices were up 2.8 percent. All capital cities and regional areas surged ahead, with growth in the cities slightly stronger.

The month of March reflected a strong trend throughout the entire first quarter of 2021, during which the housing market appeared to have well and truly turned a corner. Nationally, prices are up 5.8 percent since the beginning of the year, with no major city growing less than 3.2 percent and some surging 6 and 7 percent.

This overarching data is reflected by prices on the ground. Sydney prices are at a new record high. A homebuyer looking to buy a house in Sydney’s Northern Beaches, for example, can’t expect to get much change from $2 million, with prices going up $167,156 over the past 12 months, according to CoreLogic data. Even the relatively affordable Central Coast of NSW has been recording a median price rise of 13.6 per cent, or $88,561, to above $740,000, while Baulkham Hills and the Hawkesbury recorded a $111,610 price rise.

“Housing values in regional areas are 11.4 per cent higher over the past year, demonstrating the earlier stronger growth trend; capital city values are now 4.8 per cent higher on an annual basis with the acceleration in growth evident in March,” says CoreLogic Research Director Tim Lawless.

Evidence of price growth can be seen in all the key markets, many of which are again approaching new record prices.

The COVID restrictions and border lockdowns affected the Melbourne property market more than any other state, but despite this, values are now nearly one per cent above their previous record high last March. Low and middle-tier values have increased beyond their pre-COVID highs by 4.9% and 2.2%, respectively.

In Brisbane, dwelling values are up 6.8 per cent above the previous peak in April 2020, but while house values climbed, unit values remain 9.4 per cent below the record high value of March 2010.

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Adelaide was the least affected by COVID, and despite a small dip in May 2020, values had surpassed their previous record by September 2020. In March 2021, dwelling values jumped another 1.5 per cent, the highest monthly growth since 2007. Meanwhile, Perth is just starting to see its housing value recovery start. Over the past five months, it has recorded a one per cent increase which is likely to signal a sustained rapid recovery similar to other capital cities. 

Hobart is one of the strongest markets in the country and has seen an uplift in housing values of 12.3 per cent. The strong growth in value, which is sitting at 56.3 per cent over the past five years, is due to a lack of stock. Although it suffered a major decline in values in February last year (-32.7 per cent), Darwin’s dwelling rates have recovered well in the past year, increasing 16.5 per cent to March this year – the fastest growth rate of all capital cities. In the ACT, dwelling values have hit new highs each month since a small dip in April 2019 and are now 19.7 per cent above that previous high. 

CoreLogic says low interest rates and improving economic conditions were the foundations for the strong growth, and these factors are expected to underpin further increases. Coupled with a shortage of stock, selling conditions have been ideal, and most property analysts believe values will remain strong for the remainder of 2021.

While many might assume a seller’s market spells bad news for entrepreneurs looking for distressed and undervalued property, there is still plenty of opportunities. While many sectors of the economy are bouncing back, others remain in the doldrums, and it is expected there will be an increase in company insolvencies and personal bankruptcies in 2021.

Looking for property in areas that have not yet bounced back, seeking out motivated sellers who find themselves in economic distress, and researching mortgagee-in-possession sales are all good strategies. Picking a particular market to invest in, studying the prices paid, most desirable properties and the trends will also put you in a strong position to buy wisely. Then, you can ride the ongoing wave of capital growth.

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