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Booming Australian Property Market

Booming Australian Property Market

Written by Matthew Kerr – Mortgage Broker
Despite dire predictions, the Australian property market is booming. How did it happen and where to from here?

Feeling richer? The average Australian homeowner has an extra $60,000 equity in their pockets, thanks to a real estate boom no one saw coming.

Between March 2020 and March 2021, the average value of an Australian home rose 6.2 per cent from $554,229 to $614,768, according to CoreLogic. And much of that was recorded in March alone, which logged a 2.8 per cent leap in values – the largest monthly increase since October 1988.

This sharp rise prompted many economists to revise up their forecast for capital city price growth. Mind you, a year ago experts were predicting a housing market collapse of 10-20 per cent that never materialised. How did they get it so wrong and can this sellers’ market last?

A Different Kind Of Boom

In a year that turned many things on its head, property market trends were no exception. Capital cities were left in the dust as home buyers raced to the regions.

In the 12 months to March 2021, regional home prices were up 11.4 per cent compared to an average increase across the capitals of just 4.8 per cent. That’s a reversal of the usual trend for capitals to outpace their country cousins.

And among the capitals, it was the outliers that shone, with Darwin, Hobart and Canberra eclipsing more restrained growth in Sydney and a barely-there rise of 0.7 per cent in lockdown-hit Melbourne.

Annual Change
March 2020
Annual Change
March 2021
Median Value
Median Value
Combined capitals8.9%4.8%$643,540$693,936
Combined regions2.4%11.4%$392,802$448,819
Source: CoreLogic Home Value Index – April 2020/April 2021

Why Were The Experts So Wrong?

To be fair, who could have predicted anything in 2020? And most of the dire predictions about the property market were made at the beginning of the pandemic, before the Federal Government and the Reserve Bank weighed in to steady the ship. Here are the key reasons housing surged rather than collapsed.

Interest rates: This is probably the biggest factor in the housing market equation. The RBA cut the cash rate to 0.1 per cent and made the extraordinary statement that it didn’t expect to raise rates until 2024. This delivered a shot of confidence to nervous first-time buyers and homeowners looking to trade up. The RBA also embarked on a program of quantitative easing to put downward pressure on interest rates.

Supply vs demand (demand won): You know it’s a red-hot market when houses are selling before the first home open, auction clearance rates are up more than 80 per cent and reserves are being toppled. There are substantially more buyers than sellers driving prices higher. How did this start? Well, when the pandemic hit there was a sharp contraction in listings, as owners feared a price collapse. When low-interest loans and a raft of stimulus aimed at first home buyers and the construction market instead triggered a rush of buyers, there simply weren’t enough houses to go around. There still aren’t, with total listings still down about 25 per cent on long-term averages and economists talking about FOMO (fear of missing out) as a market force.

Renters got hit harder: This was a different kind of economic slowdown that has created definite winners and losers. The impact of business shutdowns fell disproportionately on younger, lower-income workers in hospitality, tourism and the arts, who tend to be renters rather than mortgage holders. This meant the property market was insulated from the worst fallout. Workers who held their jobs found themselves well placed to take advantage of lower interest rates and incentives.

Forced savings: People banked a lot of cash when they couldn’t spend it globe-trotting or popping out for smashed avo. Tourism Research Australia reported that in 2019, when the world was ‘normal’, Australians spent $65 billion on international travel, half of which was holiday travel. That’s a lot of money suddenly available for other purposes. What else to spend it on other than a nicer home – as we have all been spending so much time there.

Building incentives/mortgage deferrals: Stressed borrowers were able to defer loan payments, preventing a rash of distressed sales. (The scheme hit a peak in May 2020 when 10 per cent of home mortgages were in deferral. This had dropped back to less than 1 per cent as of March.1) A raft of Federal grants to build or renovate triggered a building boom, with the Australian Bureau of Statistics reporting that construction approvals for private homes hit the highest monthly figure on record in February this year.

Expat buyers: More than 440,000 Aussies living overseas returned home last year and joined the hunt for housing, fuelling already hot demand.

What Now?

That’s the million-dollar question, particularly for homeowners contemplating a move or upgrade.

Many may be tempted to test the waters and put their home on the market, but it triggers an age-old dilemma: sell then buy, or buy then sell?

Selling first in a fast-rising market can be risky. No one wants to get caught out trying to buy back in. So, with interest rates at record lows, upgraders often opt to buy first, locking in a new home before listing their old one. But this, in turn, drives the supply/demand imbalance by further inflating the pool of buyers relative to sellers.

The main things that could cool the market in coming months are a rise in supply (property listings); a rise in interest rates; a rise in unemployment; or government intervention in the form of tighter lending restrictions.

The key indicators to watch in coming months will be:

  • Auction clearance rates (the higher the hotter).
  • Mortgage approvals (rising numbers usually means rising prices).
  • Property listings (as they rise it should help take the heat out of buyer FOMO).

In the meantime, homeowners can sit back and watch values rise. In some states, such as WA where the market has been flat for quite some time, this makes for pleasant viewing.

1 Temporary loan repayment deferrals due to COVID-19, February 2021,

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