In the last 12 months, it was predicted that the property market was going to drop, with the value for both housing and apartments declining. So far, that prediction has proven to be wrong.
According to Domain, Sydney’s property market has recorded its largest quarterly increase of 8.5%, with the average cost of a house now a staggering $1.31m. The other states also recorded an increase with Melbourne at 4.8% increase, while Darwin was up 9.1% and Hobart climbed 7.6%. Brisbane had the slowest growth in house prices across the quarter with a 1.7% increase. The question is why are property prices increasing?
In this article we discuss a few reasons why the property prices are increasing.
Due to COVID19, the Australian Government introduced multiple schemes and programs to try and stimulate the economy. These schemes had a dual effect, firstly stabilising the economy but also effecting property prices. The Domain’s senior research analyst Nicola Powell said the large price increase is due to “ultra-low home loan rates, government incentives and high household savings”.
When interest rates are low, it generally encourages prospective home buyers to enter the market. With higher demand, prices naturally rise.
The same principles can be applied to the first home buyers program and homebuilder grants which allow more people entry into the market where they otherwise would not have had access.
One thing to note is that a lot of these schemes, including JobSeeker & JobKeeper, have ended in March 2021. It will be interesting to see how the property market reacts and if it has enough stamina to continue its rise without government intervention.
Buyer demand has been prompted by record low-interest rates, which have increased people’s borrowing capacity and encouraged first home buyers to enter the market.
Corelogic reported that the national property listing numbers over the four weeks to the end of March show property supply levels were 25.5 percent below the five-year average.
Additionally, auction clearance rates have been consistently above 80 percent over the past couple of months which have further pushed properties above reserve due to buyer demand, and a greater sense of ‘fomo’.
CoreLogic’s head of research Tim Lawless says “The upswing in buyer demand has not been met with the same level of increase in inventory. This has resulted in strong selling conditions, amidst a palpable sense of urgency amongst buyers, putting upwards pressure on housing prices.”
Over the past year, Australia has been classified as a ‘Green’ zone to International Travellers. This means that other countries around the world have categorised Australia as a country that is safe to travel too.
This has created Australia to be ‘hot property’. Buying an Australian property has become an increasingly attractive option for overseas investors and prospective migrants. This once again has affected the availability of properties on the market, therefore causes prices to increase. When borders reopen, international investors will add further competition to a market.
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