Why is the housing market so strong

Why is the housing market so strong

The first quarter of 2021 was one of the most remarkable on record, with house price growth running at all time highs.

As real estate agents, we are often asked, ‘How’s the market?’. That question has morphed into ‘Why is the market so strong?’. No one expected a crash in Q1 2021 but few expected the explosive growth that occurred.

The  primary  reason  for  the  house  price  growth  was  and  will  continue  to  be  ‘cheap  and  available’  credit.  Mortgage rates have been declining for 10 years. The few interest rate rises in the last decade were quickly reversed  by  the  RBA  with  rate  cuts.  The  retail  banks  Standard Variable Rate 10 years ago in April 2011 was 7.79%. In March 2021, ANZ were offering a 3 year fixed rate at 2.04% on some owner occupier home loans. What a difference 10 years makes.

Whilst mortgage rates have been in an overwhelming downward  trend,  available  credit  and  consumer  confidence in applying for that credit ebbs and flows. The market downturn that saw property prices plunge in 2018 was caused by tight credit conditions. The retail banks were under siege from the Banking Royal Commission  and  scrambled  to  introduce  prudent  lending  standards.  Many  of  those  prudent  measures  have now been removed or eased to allow ‘credit flow’.

Given  the  biggest  market  corrections  and  price  rises  over  the  past  decade  have  been  as  a  result  of  credit  conditions and availability, it’s evident that credit is the Number 1 determinant of market conditions.

Without doubt, there are some unique secondary issues in 2021 that amplified the impact of the generous credit conditions.COVID-19 has been the catalyst for many baby boomers to rearrange their affairs. Some are moving from large homes to luxury apartments, others are leaving Sydney for the regions. Baby boomers, born between 1946 and 1964  are  the  wealthiest  generation  to  have  lived.  By  virtue of their numerical dominance in demographics, if you follow the trends of baby boomers, you follow the boom. Given the role demographics play in the market, the movement of baby boomers in the past 12 months cannot be underestimated.

Pursuit  of  yield  –  remarkably  there  is  abundant  cash  swirling around the economy after COVID-19. For the first time in our lifetimes, you cannot get any sort of credible return by leaving cash in the bank. Therefore, many  buyers  are  chasing  yield/capital  growth  in  the  property market (and stock market) rather than having inflation eat the value of their cash away. Only time will tell whether buying property is the right investment strategy.

What  is  apparent  though,  is  people  feel  confident enough  to  venture  into  markets  and  splash  the  cash  that  is  swooshing  around  the  economy.  This  sort  of  confidence was definitely absent during the beginning of COVID-19 back in March 2020.

Finally, buyers are chasing space. That suggests that housing is enjoying strong buyer demand as opposed to  apartments.  The  city  is  clearly  oversupplied  in  apartments  and  undersupplied  for  housing  –  hence  the  explosion  in  house  prices  when  the  primary  and  secondary market indicators converge.

If  you  know  what  will  happen  to  the  property  market  in  the  next quarter, send us an email, because we are keen to know.

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