Real estate trends impacting the mortgage industry in 2021

One expert sees a “once in a generation property boom”

Real estate trends impacting the mortgage industry in 2021

2020 was an unprecedented year in Australia’s real estate market. The economic disruption brought by the pandemic had many observers fearing a market crash, but, as lockdown measures eased, the industry began its recovery, driven by a range of government-sponsored benefits, record-low interest rates, and renewed buyer confidence.

Here are some of the biggest trends in the country’s property sector that could significantly impact the mortgage industry this year.

1. Generational property boom.

In a recent article, Simon Pressley, head of research at market intelligence and buyer’s agency firm Propertyology, described 2021 as having the “best state of national real estate conditions since the turn of the century.”

He added that a “once in a generation property boom” began in mid-2000, after the pandemic shutdowns, which caused many industry players to fear “the biggest property market crash in 100 years.”

“All things being equal, Australia has just commenced an era of accelerated rates of homeownership and wealth creation, in very similar way to the five-years ending 2005,” the Real Estate Institute of Australia (REIA) hall of famer wrote.

Pressley added that several locations, particularly non-capital city and regional areas, are likely to reach more than 20% growth this year.

Michael Yardney, chief executive officer of Metropole Property Strategists, also sees a booming property market, pointing to record-high housing approvals as one of the key indicators.

“One of the leading indicators I watch carefully is finance housing approvals, and these are at record levels suggesting that more Aussies are looking at getting into the property market, and we will have strong ongoing demand from owner-occupiers and investors as the year moves on,” he wrote in his property update blog.

According to Yardney, part of the “savings war chest” – which the Commonwealth Bank of Australia (CBA) pegged at around $120 billion – that many Australians stockpiled during the pandemic will likely be used to buy assets such as homes, fuelling the real estate market.

2. Investors will force out first home buyers.

A spate of government grants and record-low interest rates have opened opportunities for many first home buyers (FHBs) to get on the property ladder. However, Yardney expects demand from this segment to fall due to increasing competition from investors and rising property values.

“Typically, investors compete for similar properties to FHBs,” he wrote. “Over the last few years, investor lending has been low, but with historically low-interest rates and the prospect of easing lending restrictions, it is likely that investors will re-enter the market with a vengeance.”

Yardney added that the conclusion of the federal government’s HomeBuilder scheme will also contribute to decreased demand from FHBs.

3. Property prices will continue to soar, but certain segments will continue to suffer.

While Yardney anticipates property values to “increase strongly” throughout the year, he admits some segments of the market will continue to suffer from the pandemic’s impact, particularly high-rise apartment towers and accommodation around universities.

“It is unlikely these segments of the market will pick up for some time and the value of these apartments is likely to continue to fall as there just won’t be buyers for secondary properties,” he wrote.

Recently, the chief executive officers of Australia’s big four banks – CBA, Westpac Banking Corporation, National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ) – appeared before a parliamentary committee in Canberra and spoke about the current housing market.

They said the surging home values were good for business and it was unnecessary for regulators to slow the growth rate at the moment, according to a report by ABC News.

The bosses added that the current price surge was different from the previous cycle because some of the largest gains were happening in regional areas and places where values were subdued, meaning growth was more evenly distributed now across the country.

The bank leaders predicted property values to rise more than 10% this year.

4. Remote work will have a big impact on the choice of where to live.

The pandemic has triggered a seismic shift on where the working Australian chooses to live. The technological wonders of the internet, meanwhile, have made many workers realise that their normal nine-to-five does not always have to be confined to the conventional office building.

“What was considered idyllic is increasingly becoming the reality for most people,” Pressley wrote. “Instead of where one lives being determined by where one works, there is a shift with people now living in a location that they truly love while bringing their jobs with them.”

He described the work-from-home (WFH) phenomenon as a “structural change,” which will have a profound impact on Australia’s real estate market for the years to come.

“For several years, evidence confirms a trend of an increasing number of Australians relocating away from expensive and congested cities,” he wrote. “COVID-19 has triggered a significant ramp up of this trend.”

“A range of employment data analysed by Propertyology confirms that a number of rock-solid regional cities today have superior economies than most (if not all) capital cities. For some people moving town, that does not matter because they literally take their job with them (WFH).”

Pressley added that he saw a “legitimate increased aspiration” among homebuyers to enjoy regional lifestyles, which will shift housing demand “away from ‘the big’ and towards ‘the relaxation and space.’”

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