Historically low interest rates and rising buyer confidence are fuelling forecasts of house price rises across all Australian cities, with investors tipped to pour into property markets as other asset classes remain volatile.
The shift in consumer sentiment is a swift turnaround from the property p…
Historically low interest rates and rising buyer confidence are fuelling forecasts of house price rises across all Australian cities, with investors tipped to pour into property markets as other asset classes remain volatile.
The shift in consumer sentiment is a swift turnaround from the property price plunge prognostications that were widespread in the early stages of the pandemic.
In May, the Commonwealth Bank of Australia sent shudders through Australian property markets when it released a worst case scenario projection that house prices could drop by as much as 32 per cent.
CommBank was not alone in its speculation, with a Reserve Bank of Australia survey conducted at the time showing more than half of respondents expected prices to decline over the following 12 months.
But with Australia’s ability to keep the COVID-19 outbreak in check, those pessimistic predictions have turned to positivity, with significantly greater optimism around house prices emerging across all markets.
The improved sentiment is expected to be boosted further, with pharmacueticals manufacture Pfizer reporting that its COVID-19 vaccine under development was 90 per cent effective.
Data from CoreLogic showed every capital city in Australia bar Melbourne had already moved towards an upwards trajectory in October, with anecdotal evidence suggesting price increases in the Victorian capital would not be far away.
ME Bank’s latest Quarterly Property Sentiment Report shows that sentiment has almost rebounded to pre-pandemic levels, with homeowners less worried about the value of their investments.
The survey showed 38 percent of respondents felt positive about the market, up from 29 per cent in April, as the pandemic took hold.
The biggest rise in confidence is occurring in New South Wales, with 42 per cent of Sydneysiders reporting positive sentiment in October, as compared to 29 per cent in April.
Around 65 per cent of respondents said they expected house prices to increase or stay the same where they live, with just 20 per cent predicting prices to decline over the next 12 months.
Positive sentiment is also increasing among investors, ME Bank said, with 43 per cent feeling good about the market at the end of October, up from 34 per cent in April.
However, investors remain realistic around the prospects of positive performance in the rental market, with 65 per cent of respondents overall expecting to need to drop rents to attract tenants, with those percentages increasing to 78 per cent in Sydney and 73 per cent in Melbourne.
“Despite the challenges of the current rental market, investor sentiment appears resilient and on the road to recovery,” ME head of home loans Andrew Bartolo said.
“There are many factors at play, but with the residential property being a prudent investment vehicle and low interest rates, investors seem prepared to weather any property market fluctuations that may occur as the COVID-19 situation evolves.”
Property analyst Michael Matusik said he expected bricks and mortar investments to become more appealing as share markets remain volatile and money remaining cheap to borrow.
Mr Matusik said the RBA’s announcement last week that it was not likely to increase interest rates for at least three years meant it was an exciting time to be a property investor.
“When the cash rate drops and it becomes cheaper to borrow money, it actually pushes house prices upwards,” Mr Matusik said.
“Following the announcement by the RBA last week that it was again dropping the cash rate, we will now see property prices start to increase as a result of demand.
“I wouldn’t be surprised if they rise by about 5 per cent in the next 12 months.”
Chief executive of property investment specialists Custodian, John Fitzgerald, said the historically low interest rates would be the spark needed to restart the property investment cycle.
Mr Fitzgerald said many investors had sat on the sidelines during the pandemic, and with positive news emerging around a possible vaccine, low interest rates could be the incentive to bring them back to the market.
“People who put their money in the bank are getting nothing for it,” Mr Fitzgerald said.
“We’re increasingly likely to see the next stage of quantitative easing with the US election result and most of Europe going back into lockdown.
“There is going to be a flight to fixed assets and that will drive up prices. I’m predicting as a result the Australian median house price will hit $1 million in the next three to five years.”
BuyersBuyers.com.au chief operating officer Pete Wargent was similarly bullish, with consumer sentiment surging, auction clearance rates rising and a possible wind-back of responsible lending obligations to cement a house price rebound.
“Although rental apartments in high-supply areas may remain high-risk, the market has turned from a buyer’s market to a seller’s one in a relatively short period of time,” Mr Wargent said.
“During September and October 2020 there have been several major developments in key measures and indicators that materially improve dwelling price projections and reduce market risk, particularly for houses and family-suitable properties.”
