5 property predictions for 2021

February 25, 2021

I’ve spent the last six years talking about the housing market in Australia. At the start of every year, we take a look at predictions for the property market over the forthcoming 12 months. This time that question may be more difficult to answer than ever.

In December 2019, while COVID-19 was still working its way around a wet market in Wuhan, Australia was well on the road to bouncing back from some rickety housing market behaviour.

Finder reached out to 40 economists and housing industry experts as part of our RBA Cash Rate Survey and asked their predictions for 2020. Nearly everyone (87%) said it was unlikely we would see a recurrence of the price declines experienced in 2019. In reality, COVID-19 would turn 2020 into one of the most dramatic years ever for the housing market.

On 20 March 2020, Australia closed its international borders for the first time. Over the following days, states and territories started rolling out lockdowns of varying length. These quickly sapped the renewed energy from the housing market. Worst-case-scenario predictions in April that house prices could fall by 30% were followed in May by a 14% year-on-year drop in the number of home loans issued to owner-occupiers.

After that, the market started to stabilise. The number of loans issued increased by 12% in June and another 10% in July. The total value of loans increased from $11.5 billion in May to $14.3 billion in August and then hit an all-time high of $16 billion in September, only for this record to be beaten by the $16.5 billion borrowed in October.

While the ABS has yet to release data for the last two months of the year, it’s clear the market has turned a corner – but where will it go from here? While predicting the future may be close to impossible in the current climate, some general trends are emerging. So here, with a little hesitancy, are my predictions for the housing market in 2021.

1. Australia will stay out of recession (which will be good for the housing market)

Australia experienced a brief recession in 2020 but recovered fairly quickly, with 3.3% GDP growth in the September quarter. When asked about the likelihood of the recovery holding, every single economist in our survey said that they expect Australia to stay out of recession in 2021.

Over the last six years I have spent running this project, I have never seen universal agreement on anything. If the experts are to be believed, the Australian economy is very much out of the woods.

2. Low interest rates are going nowhere

Only 3 of the 40 economists who participated in our February survey said they expect to see a rate rise this year. While 9 panelists expect a rate increase in 2022, the vast majority were unable to put any timeframe on the next rate raise. What this means is that the current cash rate is likely to remain at a record low 0.25% for the whole of 2021 and possibly 2022 also.

Right now, the best home loan rates on the market all start with a “1”. If you are paying anything north of 2%, it might be time to call your bank (on which, see point 5).

3. Prices will continue to rise

In December 2019, 86% of economists on our RBA Cash Rate panel said they expected house prices to fully recover in 2021. What they did not know at the time was that they already had.

For the purposes of this blog, I will focus on property prices in Sydney as a general barometer for the capitals across the country. House prices in the Harbour City broke a few records in 2017.

According to CoreLogic data, the three-month average house price topped $1 million for the first time in May that year, before doing so again in June and November.

In the following years, the price jumped around a bit, dropping to a low of $848,250 in February 2019, but it never again broke the $1 million mark, until November 2020. The $1,010,000 average house price in CoreLogic’s most recent data indicates that the housing market really is roaring back into life.

4. Rents, however, will remain low

I am fortunate enough to get to talk about property and personal finance on TV, and Sunrise asked me in August 2019 to comment on the rapidly falling rents seen across the country. I had just purchased a home and my old landlord was struggling to find new tenants.

Friends were taking advantage of the declining rents to upgrade to sea views. This was the result of only a 6% drop in asking rents that month, but the decline didn’t end there.

According to data from SQM research, the average rent on a 2-bed unit fell from $523 in January 2019 to $464 in January 2021, a total fall of 12%. While February saw a slight increase to $471, international borders are still closed and overseas students are showing no signs of returning. Expect rents to remain low for the rest of the year, and small-time landlords to suffer.

5. And finally, you may receive a call from your bank (and you should take it)

At Finder, we often tell consumers to call their bank and ask for a lower rate. Banks will often do what they can to keep a customer, but the burden has always been very much on the borrower. This may be about to change.

When I purchased my first Sydney home last year, I signed up for a loan with an excellent interest rate of 2.19%. I was pretty happy with this and not too bothered when the cash rate fell later in the year and the best value loan on the market got cheaper. However, I was very surprised when my bank called me out of the blue and asked if I wanted to switch to the lower rate. I would have to pay the break fee of around $2,000, but in exchange they would offer me a rock bottom rate of 1.89%, resulting in a saving of more than $5,000 over 3 years. I agreed.

With the investment market still relatively stagnant and overseas buyers unable to visit, many lenders have focused very heavily on the owner-occupier market as they compete for business. This has resulted in some of the best deals we’ve ever seen and many Aussie borrowers are moving to new lenders. The banks, it seems, are taking notice. We asked 24 of our RBA experts if they think the current environment would result in banks calling their customers more often and offering lower rates to stave off refinancing – and all but 1 of them said yes.

What this means is that borrowers have the power in this market. If your bank doesn’t call you, it might be time to shop around. A little work now could save you a whole lot in the future. In the meantime, follow Finder’s Insights Blog for more property market discussion.

Graham Cooke
Graham is the Head of Consumer Research at Finder. A seasoned data journalist, he loves digging into the numbers to find trends that matter to consumers. He regularly talks about personal finance and the housing market on ABC News, Channel 7 News, Channel 9 News, Today and Sunrise.
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