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In this week’s episode, Dave, Cate and Pete take you through:

  1. 2020, the year of the first home buyer. First home buyers have been entering the market in droves and hitting record numbers in 2020, taking advantage of the many incentives available. First home buyer activity has also propped up the construction industry, which certainly helped the economy. But when will investors return to the market? The trio share their insights.
  2. The outlook for interest rates. Not only are interest rates the lowest they’ve ever been, but fixed rates are also lower than the standard variable rate. What times we live in! The Property Planner explains why fixed rates have dropped so far, how long we can expect interest rates to stay low and potential future issues that may arise due to a sustained low rate
  3. What economic cliff?The levers that the government can pull to prop up the economy and support during downturns are many and varied, and we haven’t seen any sign of the dreaded ‘economic cliff’ trumpeted by doomsayers. Let this be a lesson to the naysayers!
  4. Houses v units. How did houses fare compared with units? It comes as no surprise that units, and particularly small apartments, were the hardest hit during 2020. Downturns often reinforce the weaker areas of the market place and this has played out in 2020.
  5. The great renovation. We’ve lived through the renovation boom and our houses are growing to be the biggest in the world. We are truly the lucky country, but how structural will this change be once people start heading back to the office a couple of times a week?
  6. Regional locations – capital growth and sales volumes. Regional locations have been the star of 2020, outperforming capital cities in both capital growth and sales volumes with some stellar numbers. But will regional locations remain at the front of the pack in 2021? The Property Planner and Buyer make their predictions.
  7. Why did the property market remain resilient?Overall, national property prices increased by 3% throughout the year and the trio share their insights on the key factors that kept the property market chugging along through 2020, driving the quickest recovery we’ve seen in a property downturn over recent decades.
  8. And of course, our ‘gold nuggets’!

Resources:

Show notes 

  • The year of the first home buyer 
  • FHB have had it good, when compared with past years of being up against investors.  
  • They’ve represented a large portion of new loans and buying activity at record numbers.  
  • 35% of all purchasers were first time buyers – driven by the stimulus of federal and state incentives to also encourage the construction industry. A lot of those purchases will be brand new homes, not likely to bring capital growth and long-term returns. But it certainly has helped the economy. 
  • Investors will come back to the market 
  • There is a lot of attractive reasons – initiatives in some states with stamp duty concessions and responsible lending repeal. There is a fair amount of reasons why investors will be back. 
  • Ability to leverage, interest rates and returns are much more attractive. 
  • In every capital city, the highest price properties did not perform as well as the lowest and middle of the range properties – this is the space that first home buyers play in. 
  • Interest rates 
  • Governor Phillip Lowe has basically guaranteed rates will not be increased for the next 3 years. Those kind of statements are fraught with risk and could be famous last words. One of the potentials of all the stimulus and low rates, could create higher value assets and asset bubbles, we could be looking at an inflation issue somewhere down the track. Whether it’s 2 or 5 years, we’ll see how that plays out. 
  • Lowest on record and they will remain low.  
  • What we’ve seen during this period is that fixed rates have been incredibly low. Normally the discounted variable is lower that the fixed rate, but because the RBA has been targeting the 3, 5 and 10 year bond yields to suppress the currency, means the banks have been able to buy much lower long-term money and so the fixed rates are the lowest they’ve ever been.  
  • This is the best time I’ve ever seen to lock in fixed rates. Not only because they are so low but it’s not often that they are lower than what you can get on variable. 
  • Denmark – offering 20 year fixed rates at 0% and other European countries offering negative fixed rates.  
  • Mortgage repayment pauses 
  • Down to a small percentage of people still on mortgage repayment pauses. 
  • We had naysayers that predicted when repayment pauses ended, inline with JobSeeker and JobKeeper ending, that the market would crash. We haven’t seen any sign of this yet. 
  • This is a lesson to the naysayers – the government has many levers it can pull to avoid recessions and prop up the economy to support us through downturns. 
  • During and straight after previous recessions, there was no property crash. If they didn’t crash then, why would they crash now? Especially when we’ve had JobKeeperJobSeeker, repayment holidays and lowest interest rates.  
  • Houses v units 
  • We saw decreases in rents in units in Melbourne and Sydney. 
  • Unit can mean a whole number of things – tiny apartments for international students, bigger units and townhouses targeted at first home buyers.  
  • The international student tap was turned off. 
  • The desirability disappeared – if you’re a young person living in a one bedroom home, it’s hard to look professional on zoom working from home, especially if you have a partner. People were no longer setting their sites on these units. All of a sudden, tenants and home buyers were looking at something bigger or something you can make bigger 
  • Renovations 
  • We’ve lived through the renovation boom and our houses growing to be the biggest in the world.  
  • This is connected to the piece of the puzzle of people working from home. 
  • But how structural will this change be? People will still need to go to the office 3 days a week, and even so, you still don’t want a huge commute.  
  • Strict working from home arrangements won’t be enjoyed by everyone, we may see a hybrid model remain. 
  • Elasticity – people have enjoyed being able to move away, but we may see a bounce back of people coming back in. 
  • Regional locations – capital growth 
  • Significant outperformance of regional locations.  
  • National prices up 3% 
  • Regional 6.9%, yield 4.9% = total 11.8%  
  • Capital cities homes 2%, yield 3.3% = total 5.3% 
  • Covid Apr to Sep Drop 2.1% 
  • I think we’re going to see capital cities reverse those numbers – people will come back to capital cities once normality resumes – watch this space for those numbers to flip.  
  • Regional locations – Sales volumes in 2020 (minus December) 
  • Regional – 11.7% increase on 2019 
  • Capital cities – 0.1% increase on 2019 
  • Best of the best and worst of the worst – In regional WA – almost 34% more sales and Melbourne 20% less sales. 
  • You can get outperformance in regional areas, but that is ongoing. 
  • The hallmarks of a market like that is short days on market, stock selling before anyone has had a chance to go through it, buyers scrambling, ratio of buyers being a lot higher. 
  • $65B a year we spend on overseas travel – that’s now gone into property, caravan, jet skis and fun. Once we get up and running again, there’s going to be less money to move into property.  
  • Why did the market stay so resilient? 
  • Housing is a basic need, not everyone has multiple properties. If something like this strikes, there’s no reason for you to sell your property and be out on the streets looking for a rental. 
  • No one wants to market their property, costing them advertising dollars when you’re not allowed to have anyone walk through it.  
  • Really good initiatives and incentives to give us comfort and confidence, to give a back stop behind us – particularly for small business and employees.  
  • Low rates  
  • Desire for people to hold property – repayment pauses 
  • Fiscal and monetary stimulus 
  • Containing the virus – the better you can contain it, the better your economy stands up. 
  • The recovery during covid-19 period, was the quickest of all the downturns.  

David Johnston- The Property Planner’s Golden nugget: downturns reinforce the weaker areas of the market place, we’ve been talking about off the plans and medium to high density apartments are high risk and they are what’s been hit the hardest during this downturn. Capital cities, it’s worth remembering Melbourne home values are minus 4.1% below their March peak, Sydney dwelling values have 3.9% to recover from their 2017 peak and Perth values remain about 20% lower than their 2014 peaks. So those numbers put in perspective where we’re at and how property values have been pretty flat for a long period of time. And why for all the reasons we’ve discussed today we’re going to see an upturn of property values in 2021 and 2022.

Cate Bakos – The Property Buyer’s Golden nugget: data and interpretation and understanding the timeframe behind the data. A lot of sales are not recorded until they settle. We can expect to see the actual data for 2020 in February and March, and there will be a stronger tail/tale to tell.

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