Are Lockdowns the Reason For Increasing House Prices?

Are Lockdowns the Reason For Increasing House Prices?

 

Why are the lockdowns are not having an adverse impact on property prices in Australia? One would think that lockdowns and the COVID pandemic would have sent the economy into recession and caused property prices to plummet however, we’ve seen one of the best years on records for property price growth. Even at the beginning of the pandemic, many experts and major banks predicted price drops of up to and beyond 20% however, we’ve seen the exact opposite.

 

In Sydney and Melbourne, the two states who’ve had the heaviest restrictions and long-term lockdowns, have seen property prices grow by 24% and 16% respectively year-on-year. What has been noticed in WA and NT is that property prices haven’t risen as dramatically. A key reason for this may be based on supply and demand. Michael Yardney feels that during lockdowns clearly there becomes a shortage of sellers yet at the same time there is a shortage of buyers, so things, therefore, things balance out.

 

So, what else is driving prices sky-high? One thing for sure is that since the lowering of the RBA cash rate to 0.1%, interest rates and mortgage repayments remain low. This also increases the borrowing capacity for many buyers meaning they can afford to spend more. The other impact ongoing restrictions have had is that household savings have gone through the roof. As we cannot spend our money on travel and other things, we now have bigger deposits to secure our dream property and, of course, other luxuries.

 

However, if it was all about lower interest rates driving demand, we’d expect prices to be jumping just as much anywhere. I would argue that in places like the NT and WA there are plenty of buyers however there are also many sellers and there is not a severe property shortage like in other states. Whereas in Queensland, Sydney and Melbourne there is a continuing shortage of good homes for sale and a huge surge in buyer demand, which doesn’t seem to be easing, and that is a key driver for increasing prices.

 

So, yes, cheap money and good household savings, among other recent government stimuli, has been very favourable to the property market, however, it is the misbalance between supply and demand in my eyes is still a very big reason why good and increasing property prices continue being achieved. Momentum in growth is showing signs of easing since the peak in March with many major banks and experts predicting a continuing upward trend for the remainder of 2021 and then a likely strong but softer market next year.

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