6 reasons why the property outlook is bright

The Federal Budget has given us even more reasons to believe that the property outlook is bright. Amongst the swathe of initiatives announced, there were a number of job creation measures, such as JobTrainer and JobMaker, that will help to stimulate our economy in the months ahead. The additional 10,000 First Home Loan Deposit Scheme places will also benefit prospective property owners – plus the property price cap in Sydney has been increased to $950,000 to better reflect market reality in the Harbour City. Overall, the hundreds of billions of dollars of economic stimulus announced in the budget will help our economy recover as well as underpin property markets. Here are six other reasons why the property outlook is positive.

1. Pandemic management Compared to many other nations around the globe, Australia’s management of the pandemic has been outstanding. While we did experience a second wave in Melbourne, our total case numbers have dwarfed many other nations with similar-sized populations. Most of the nation is now working towards the “new normal” way of life, including COVID-safe plans for everyday activities such as going out for dinner or playing community sport. Borders are reopening across the country and international travel to neighbouring nations such as New Zealand will soon also be under way. A vaccine also continues to be under development but in the meantime, our pandemic management success is just the confidence booster property markets need to strengthen even more.

2. Unemployment rate

Amongst some of the wild predictions of economic indicators over the past few months has been the unemployment rate. While there is no question that tens of thousands of Australians have lost their jobs because of the pandemic, the unemployment rate has consistently been lower than expected. The unemployment rate hit 7.4 per cent in June but has been trending down since then and was 6.8 per cent in August. The main reason for these better than expected results has been the JobKeeper program, which provided financial support for people unable to work due to the pandemic. However, apart from Melbourne, many people have been able to return to work over recent weeks and months, but for those unable to do so, the program has been extended until March next year.

3. Low interest rates The RBA cash rate was reduced twice in March to support our economy at the start of the pandemic. The cash rate remains at 0.25 per cent, with momentum growing for it to be lowered further if needed in the months ahead. Regardless of whether this happens or not, the historically low cash rate is putting money in our back pockets through lower mortgage repayments.

Indeed, mid two-per cent interest rates are now quite common for many home loans. The low interest rate environment is also making it easier for more people to buy property, which helps to stimulate our economy as well.

4. No price cliff

Do you remember in April when everyone was talking about a property price cliff happening in September? Well, it’s now October and it never happened – and nor was it going to! Part of the reason was JobKeeper but also the willingness of banks to work with borrowers who had been impacted by COVID19. Another reason is the low level of listings on the market, which is underpinning property prices and encouraging competition amongst buyers for the available stock on market. In fact, asking prices for Sydney houses have increased 3.7 per cent compared to October last year, according to SQM Research.

5. More positive forecasts Some of the property market forecasts at the start of the pandemic were pointing to a near future of price doom and gloom. Double digit price falls were seemingly imminent but, again, this never came to pass. Not only were many forecasts alarmist, they have also been revised significantly over recent times. For example, Westpac updated its thinking, which now includes a serious price boom in the next three years. The bank’s economists now expect only marginal price falls and then surging price growth of up to 20 per cent in some locations. In fact, Westpac expects dwelling prices to increase 14 per cent in Sydney between 2022 and 2023.

6. Lending relaxations During a global health emergency, it’s probably no big surprise that lenders got a bit nervous. The end result has been that some potential borrowers in Australia haven’t been able to secure the funds they needed to purchase property. However, the Federal Treasurer Josh Frydenberg recently announced that bank lending rules would be simplified in coming months. While credit had become cheaper because of low interest rates, tight regulations were still preventing too many borrowers from accessing finance, he said. The move is expected to further simulate the economy by increasing the number of borrowers approved for home loans. This policy is sure to see more investors return to the market, which will no doubt put more upward pressure on property prices.

Grant Foley is a Property Investor, Qualified Property Investment Advisor (QPIA) & Licenced Buyers Agent. Enquiries: info@grantfoleyproperty.com.au

© Grant Foley Property 2020

The content of this article is of a general nature. Investors should seek their own independent legal & financial advice