Ultra-low interest rates and FOMO drive dwelling values to new records with double digit growth on the horizon for many areas in the country.
As projected, the housing market has shifted from a buyer’s market to a seller’s one, where fear of missing out (FOMO) has become a major factor. In addition, it is highly likely that the ultra-low interest rate environment will remain in place for at least for the next 24 months, and possibly longer.
This, combined with only a low availability of stock of quality assets in popular areas, has been reflected in almost unprecedented auction clearance rates.
It is projected that both Sydney and Melbourne will deliver capital growth in the range of 8-12 per cent in 2021. Many SA4s are also likely to deliver double digit growth in 2021. In particular, houses with a high land value component and scarcity value are likely to enjoy very strong demand and capital growth, both in the short and long term.
Therefore, housing affordability is projected to deteriorate substantially.
Our key underlying assumption is that the COVID-19 vaccinations that have been rolled out will provide a sustainable solution to the virus over time.
As mentioned in our previous reports, our market research shows that some sectors of the housing market continue to represent a high risk at the present time, in particular inner-city apartment markets, which are oversupplied and are experiencing falling rents as Australians look to avoid the higher density locations. In addition, there is a high degree of uncertainty in relation to immigration, which is a major demand factor for rental apartments.
These risks, combined with high vacancy rates, increase serviceability (i.e. cash flow) risk, and consequently, make these apartments less attractive to investors, who represent the main cohort of buyers in those areas.