Property prices have shown resilience despite the pandemic scare. Low rates and government incentives could be attributed to this good showing. Industry players are expecting the recovery to continue.
The December 2020 and March 2021 quarter may be periods of relatively stable prices with some modest increases.
Though low-interest rates and a milder than expected recession has caused renewed optimism, Melbourne would lag behind the rest of the country in their recovery, owing to the coronavirus upshot.
The bank has also suggested the possibility of a more substantial recovery in GDP. Besides, a COVID-19 vaccine could be available in 2021, opine the bank’s top economists.
The focus on economic recovery will be a constructive environment for the Australian housing market.
The COVID–19 pandemic is an extraordinary occurrence, unlike any shocks or cycles that the world has encountered since most macroeconomic measures were developed.
Up until August 2020, the exact fallout for the Australian housing market was an unclear subject. Experts rightly opined that the ultimate impact on the housing market would be largely determined by the course of the novel coronavirus. However, a silver lining in the form of recovery has appeared- Australian bank and financial services provider, Westpac Banking Corporation Limited (ASX:WBC) is forecasting a 15 per cent surge in house prices over two years, as per many media reports.
Latest House Prices Forecast by Westpac
Earlier in September 2020, Westpac-MI consumer sentiment survey had already suggested a household-related recovery in Australia. The survey concluded that households seem optimistic over the labour market, with unemployment expectations merely 3.3 per cent over the six-month average pre-COVID, as well as fiscal policy and politics more broadly. Besides, households are reportedly becoming open to discretionary spending, the ‘time to buy a major household item’ index rising 16.3 per cent to be ‘only’ 12.1 per cent lower than a year ago.
Taking the recovery trajectory forward is Westpac’s forecast, excerpts of which are highlighted below-
Unveiling Wind Beneath Recovery Wings
Before diving into the various reasons that are possibly propelling the recovery in the Australian housing market, let us look at the real estate sector’s performance on the ASX on 18 September 2020, S&P/ASX 200 Real Estate (Sector) was down by 27.3 points or 0.39 per cent at 2,993.
While it will be interesting to gauge the recovery on the stock exchange, let us cast an eye over a few reasons that are supporting the housing market’s upturn-
First and foremost, low interest rates, freely available credit, and a softer than anticipated recession has caused economic optimism in Australia. Borrowers have been attracted to the lower fixed rates on the rational notion that there is not much to lose. The housing market is especially much more optimistic about the pace of price appreciation, forecasted by Westpac. Consequently, many major capital city real-estate prices are expected to be more resilient, with a national fall of five per cent between April and June of 2021.
Another catalyst of this renewed forecast of recovery is the unlikelihood of further significant reductions in the overnight cash rate. It should be noted that the cash rate traditionally impacts variable mortgage rates.
Besides, COVID-19 disruptions across Australia have been briefer and milder than expected. Though Melbourne's second wave was a tough sledding, it now seems to have been less severe than previously thought.
Not to overlook, ongoing support from regulators has been top-notch in Australia. Support continues to pour in the form of significantly increased affordability and sustained fiscal support from the Fed as well as state governments. Besides, Government stimulus in the form of JobKeeper, early access to superannuation, bank repayment deferrals, and rental relief are also supporting the Australian economy.
COVID-19 Situation in Australia
As per the JHU CSSE dashboard on 17 September 2020, Australia had 26,813 confirmed cases of COVID-19. There have been 832 deaths and 23,790 recoveries, to date.
It is largely agreed that the ultimate impact on the housing market will be largely determined by the course of the novel coronavirus. Besides, developments around a potential vaccine will become increasingly important to all markets and economies.
As Mr Hassan puts it- “it’s all about the virus in 2020 and 2021”.
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