Melbourne’s residential real estate market is set to hit the ground running in 2021, with intensified competition for homes and more buyers prepared to pay vendor asking prices.
After a year of restricted property transactions due to the COVID-19 pandemic, buyers are cashed up and poised to take advantage of historically-low mortgage borrowing rates, according to leading economists and real estate agents.
Nelson Alexander Sales Director Arch Staver says Sydney real estate agents are reporting record levels of demand for properties. The same intense activity levels will shape the Melbourne market in 2021, he expects.
Mr Staver says Sydney’s market is currently “ahead of the game” in national real estate activity because the NSW capital didn’t have the severe lockdown that Victoria had.
“The Sydney market is white-hot at the moment – it is stronger than it has ever been,” Mr Staver says.
“Obviously, that market is being fuelled by low-interest rates, but the appetite for purchasing properties is just so strong right now. I think Melbourne is set to follow suit – the pent-up demand in this city is a very real thing, and buyers are out in force.”
Economists say Australians stashed away $110 billion in savings during the pandemic.
Much of this money is now being spent on property or earmarked for real estate purchases.
Agents say there is solid buyer depth at different real estate price points.
Recently announced stamp duty discounts from the State Government have energised young first-home buyers in the sub-$1million bracket.
These buyers aren’t alone: low-interest rates and the looming end of COVID are prompting high enquiry and inspection rates for more expensive family homes and trophy properties. The prevailing signs are 2021 will be a switched-on sellers’ market at every price point.
Any house price weakness caused by COVID-19 appears to be rapidly exiting the national stage. House prices rose in every capital city in November for the first time since the pandemic started to affect values in March, according to the latest CoreLogic Home Value Index.
National home values rose 0.8 per cent over November to a median of $565,474.
CoreLogic’s head of research Tim Lawless says if the current growth trend persists, national values are likely to surpass pre-pandemic levels in early 2021, after falling just 2.1 per cent between April and September.
“If house values continue to rise at the current pace, we could see a recovery from the COVID downturn as early as January or February next year,” Mr Lawless says.
Sydney values rose 0.4 per cent in the month, while Melbourne jumped 0.7 per cent (to a median of $672,172), its first month back in positive territory since the pandemic hit.
The increase comes after interest rates were slashed to record lows in November, opening the way for potential buyers to borrow more.
At the start of the crisis, several economists were predicting house values to drop by 10 per cent or 15 per cent, which has not happened to date.
Numerous economists are now upgrading their outlooks. Westpac is predicting no further price falls and 4 per cent price growth next year. Meanwhile, ANZ has ditched its forecast for a 10 per cent drop to predict growth next year of 8.8 per cent in Sydney, 7.8 per cent in Melbourne, 12 per cent in Perth and 9.5 per cent in Brisbane.
Buyers have also been taking advantage of government grants to build new homes, with official figures showing a 3.8 per cent rise in building approvals in October.
Despite this upward pressure on the market, some prospective buyers remain hopeful there will be a lot of distressed sales and are waiting for a property bargain to come along.
So, are these buyers making a mistake?
“Yes,” says Mr Staver. “Buyers are coming to terms that this is unlikely to happen and that the low-interest rates will push up demand.”
He says when property downturns occur, traditionally the first market that suffers is the coastal market for beachside holiday houses.
But this has not happened with the 2020 COVID-driven downturn. That’s due to the constraints put on overseas travel and the surge in cheap home loans.
“On the Mornington and Bellarine peninsulas, agents are seeing multiple bidders for holiday houses, and they are bidding very strongly,” Mr Staver notes.
“These buyers accept that they’re not going overseas soon and that money is cheap, so they are making the decision to buy a second house.
“We are seeing high levels of confidence across the whole Melbourne metropolitan area. There are multiple bidders at many of our auctions, and even at private sales, there are typically a number of buyers who are prepared to pay the full asking price.
“These buyers are not trying to be tough negotiators, so to speak, because they are fearful that a rival buyer will come over the top of them.
“There is a great deal of energy in this market, no question.”
Commonwealth Bank of Australia’s head of Australian economics Gareth Aird says improving consumer sentiment, low-interest rates and cashed-up households are fuelling price growth.
Mr Aird says a number of forces are all pointing to higher house prices.
“Some of the forward-looking indicators like lending have increased quite quickly in the past four months,” he says.
“The price people are willing to pay for an asset is going up, and property is no exception,” he notes. “You’re either renting or you’re an owner-occupier and if the borrowing costs come down … then it’s a very natural response.”
New home loan commitments reached record highs in October, according to the Australian Bureau of Statistics figures. The total value of written home loans rose 0.7 per cent to $22.7 billion in October.
Mr Staver says the fact the banks are now reassessing how severe any COVID-influenced downturn on property demand will be, augurs well for 2021 sales.
“There is a sense the market is going to be stronger than we anticipated just a few months ago, “he says.
“Sydney agents are experiencing a solid period right across the board. There are multiple bidders over the $10 million mark. At every price point, there are buyers.”
If you would like to discuss selling or buying a property, please contact any Nelson Alexander office or complete the form below.