Why the extraordinary momentum in the property market? No one predicted the strength that has been witnessed not just in Melbourne, but nationally. I did suggest that prices would ease during the pandemic, then claw back 10% over the following 12 months but this recovery has eclipsed all predictions. Much of the hype can be contributed to low interest rates, insufficient levels of supply, and incentives which maxed out to $86,000 for first home buyers. There has also been a $90 Billion JobKeeper stimulus and with little else to do with savings through harsh lockdowns, but save; yet why the obsession to buy property now? And in many cases way above its real worth. Is it FOMO, impatience, cashing up in the city to buy twice the sized house for half the money in regional locations, or to invest profits from a booming stock market; it is an enigma. Considering these valid reasons for positive movement, I find it staggering in the midst of a pandemic and economic instability that no matter how many auctions you throw at any given weekend there are multiple buyers reluctant to temper their bidding and contributing to record breaking results. On 28 March the clearance rate hit an all-time high not seen since October 1988. It is not unreasonable to assume that this particular weekend was the pinnacle, but time will tell.
During the period of 2017-2019 Melbourne’s price values retracted 11% and during the worst of COVID in 2020 a further 5.6%. From late 2020 property buyers adjusted their thinking on not only how they would spend their spare holiday dollars, but where they would live with many attracted to the benefits of residing out of Melbourne to set up camp in regional Victoria. March 2021 witnessed a frenzied market not seen in my 33 years of property with the month alone in Melbourne and Regional areas increasing 2.6% and 2.4% respectively. The quarter gained a breathtaking 7% for the regional areas and 4.9% for the Melbourne Metropolitan area. ANZ economists as with many other professionals are a predicting a 17% rise for the year, but these are the same experts that suggested a crash to the tune of 30%.
Why interest rates are so low and need to stay that way for a further 3 years baffles me. With no preparation for the market to take a turn I am apprehensive about the troubling statistics of mortgage to debt for the over 55’s tripling from 71% to 211% and mortgage debt up 600%. The median house is now 10 times the average wage. The current appreciation is unsustainable, something eventually has to give. Presently there appears to be no reason why growth won’t continue at 10% per annum for the foreseeable future – if unemployment rests at 5.5% or below, businesses stabilize, immigration resumes and investors continue their confidence in returning to property after a stock market windfall. Good luck out there, and purchase with your head as well as your heart!
Michael Ramsay
Principal
The Advocates