May 2021

A Real Estate Industry comment from Blaise Griffin.

What a ride!

2021 has seen the residential real estate market defy gravity. It was only 12-14 months ago, most industry commentators were suggesting price corrections or drops anywhere between 15%-30% depending on location and the data being put forward.

How wrong those comments turned out to be.

I was one of those industry professionals forecasting price drops – not price gains. Out of the confusion and unknown landscape going forward throughout 2020 brought about by Covid, we have found ourselves in March this year with the fastest price growth recorded in 32 years. It would appear that this asset bubble in Australia, is in a complete disconnect with the global economy as a whole.

‘We are a lucky country’.

Being an island has certainly shielded us from some shocking Covid realities around the planet. The massive price growth is not limited to our main cities, but also regional Australia where the percentage gain in prices has easily exceeded those of the cities.

Covid has certainly changed the way we live. This could quite possibly turn out to be a permanent change in the way we think, work and live. Tens of thousands of people have already left our cities to find a different way to live which has generated massive price growth in regional areas. Major corporations are already adjusting to the new work from home models and many require less office attendance and far more flexibility with their employees. 

Governments have supplied stimulus, grants, and stamp duty relief to first home buyers to help those first-timers get on the property ladder. With this current price explosion, the gap has actually become worse in most areas.  

Clearly, this bull market is driven by a couple of factors:

• The cost of money has never been so cheap.
• The supply/demand equation has never favoured sellers as much as this - ever. Even with the modest increase in supply to market this year, we are still experiencing 26% -30% less stock to market over the 5-year average.
• Fear of missing out has added another layer to the recently recorded frenzy.

The question is, of course, can this last?

Across the board, we may have seen the slightest falls in auction clearances through April, and some agents are reporting slightly less buyers through open house inspections. Certain pockets in the unit market have actually recorded price drops, especially those investment properties which use to fill the need to house the tens of thousands of international university students in and around university campuses. We have just recorded the first fall in population and population growth since 1916 due to closed borders, no immigration and domestic birth rates well below two per household.

Is the current price growth and are current home prices sustainable?

Will buyers continue to pay huge prices?

Will we see a price correction in the near future?

We are being told that super low-interest rates will be here for years to come. If that is the case, something has to change. What will it be?  If the cost of money stays the same, I believe the only thing that will take some heat out of the market is more supply. More stock is needed to come to market to balance the supply and demand graph. We need to get back to a balanced market, meaning you have an equal number of sellers to buyers. Clearly, a seller needs to know they will have choice for their new purchase.

So, what will change the above factors driving this bull market? It appears to be a chicken or an egg scenario.

How will more stock come to market?

What will be the driver?

Assuming all stays roughly the same, the only driver or catalyst for stock levels to increase I can see is if we actually do have price corrections. The next 12 months will be extremely interesting.

Regards,

Blaise Griffin

Blaise Griffin

Principal / LREA

Griffin Property Agents

Mobile: 0412 113 873

blaise@griffinpropertyagents.com