In 2020 real estate faced an unexpected challenge with the onset of COVID-19. After 2019’s Federal Election, the first quarter of 2020 saw the real estate market in recovery mode, with more positive signs across the last quarter of 2019 and the first quarter of 2020. And then the pandemic hit. Here’s how the market unfolded in 2020, from Henny Stier, the co-founder and Principal Buyers Agent at OH Property Group.
After the 2019 election, by early 2020, buyers were starting to dip their toes back into the property market again. On the North Shore, most properties were selling at fair prices. The better properties sold quicker and at higher prices than the not-so-good properties – which is how it should be. Some properties were sold under the hammer at auction but just as many were sold prior or post a failed auction. This is what we can refer to as a “normal” market.
2020 Real Estate: The COVID aftershock
Then COVID happened. NSW went into lock down. Open Inspections were no longer allowed, and inspections had to be via private appointment. Schools, offices, and shops were shut, and the news cycle was filled with stories about deaths, businesses which have gone under, the queues at Centrelink, and a pending cataclysmic recession. It was grim no matter how you looked at it, as the Australian Government frantically tried to stop the economic damage.
What was the impact?
- Many buyers who were looking for properties in the first quarter of the year put a pause to their search due to the uncertainties
- Vendors who had listed their property just before lockdown either withdrew their listing or became desperate to sell as quickly as possible – especially if they had bought elsewhere
- We saw some great buying opportunities during this peak panic period of lock-down when Vendors offered substantial discounts to just get a deal done
If you were to ask any analyst or property expert in April how the real estate market would look at the end of 2020, no one could have predicted the stunning jump in Sydney property prices. Indeed, during the second quarter of this year, all the major banks predicted rather dramatic declines in property prices.
Just after the pandemic struck:
- CBA forecast house prices would fall by between 10-12% with a worst-case scenario of up to a 32% decline in property prices and unemployment at 10%
- NAB was predicting a 10-15% decline and unemployment to reach 11.7%
- ANZ predicted around 10-11% fall.
- CoreLogic predicted house prices would fall by 10-20%.
None of these predictions have materialised.
What we have witnessed instead in the last 3-4 months is a buying frenzy for houses. It became somewhat a norm to attend Open Inspections on the North Shore with 50-60 groups in attendance. One of our clients was selling their property on the North Shore and they had 92 groups in attendance at one inspection. Properties were selling for hundreds of thousands above the price guides and often selling after just the first or second Open Inspections. Auction clearance rates have been hovering very consistently at between 75-80% in the last couple of months.
Even mediocre properties with significant flaws were selling for high prices – this is often a telling sign of an overheated market. The market literally surged anywhere from 5-10% in some suburbs within a 3-4-month period and taking us back to the peak prices of 2017.
How did the experts get it so wrong?
Nearly every expert and pundit got their predictions wrong. This is an unprecedented global pandemic and not even the experts have any data to support their predictions simply because this is new to everyone. There are so many variables at play that it is impossible to model with accuracy.
Real Estate 2020 (and into 2021!): Why are so many people suddenly looking to buy?
Lifestyle changes and the impact on housing
- What was only a temporary work-from-home arrangement is likely to now be made permanent for many. This has driven families to re-assess what is important to them in terms of how and where they live. Proximity to the city for easy work commute is no longer seen as a major lifestyle need and many people are now willing to trade off a short commute in exchange for a lot more space (both indoors and outdoors).
- The lockdown period forced everyone to spend a lot more time at home. This makes everyone acutely aware of all the niggly issues of their home that they may never be able to fix. There is nothing like spending 24 hours a day at home for weeks on end to highlight how small the bedrooms are, how dark the kitchen is, how the backyard does not get much sunlight, or how they wish they have room for a pool, etc. People with kids who previously prized living centrally in apartments suddenly realise the value of a large backyard in an outer suburb.
- The reality of working from home long-term has driven many families to look for larger homes. Instead of 3 bedrooms, many are now looking for 4-5 bedrooms so that each parent can have a home office each. The dining table can only serve as a home office for so long!
- Now that COVID has made telecommuting a norm, many people have left Sydney altogether for a sea change to places such as the Central Coast, South Coast, Kangaroo Valley, Byron Bay, and the Southern Highlands.
More market factors
Pent-up demand: Many families were forced to put their buying plans on hold when COVID happened and there were few listings as vendors held off from selling too. So, there was a pent-up demand.
Money is cheap! With record low interest rates, money has almost never been cheaper. Today, one can secure a Principal and Interest Owner Occupier loan as low as 2.5%. For a $2m loan amount, this brings down the monthly Principal and Interest payment by about 17% or by $1,650 (about $30,000 less interest per year) relative to June 2019. So for those who have the same jobs and incomes as pre-COVID, they can afford larger homes or have the cashflow to buy that much earlier, translating to increased demand.
The uneven impact of COVID: Although the news tends to highlight all the businesses which are struggling to survive through COVID, many are doing very well out of the pandemic. Whilst the hospitality and travel industries have really suffered, many online businesses have boomed. Grocery businesses, online retailers of sporting equipment, furniture and home accessories, pet goods, toys and electronics are just some examples. This has led to many people profiting well and being in a position to upgrade their homes.
Quiet confidence: Australia is recognised globally as a COVID pandemic success story. Both Federal and State Government responded quickly and decisively with a raft of health as well as social and economic policies to deal with impact of COVID. This has given the population a sense of quiet confidence that everything will be fine, and life will go back to normal. This has enabled buyers and sellers to feel confident about buying and selling property once more.
Sydney Real Estate Predictions for 2021
All the major banks and most economists have now reversed their predictions.
- NAB is expecting a rise of 5% over 2021 and 6% over 2022
- ANZ is predicting a 9% rise
- SQM’s recently released Housing Boom and Bust Report 2021 predicting that Sydney prices may increase between 7% and 11% in 2021
They all got it really wrong with their previous predictions… so time will tell if they will be correct this time around!
What is important to note that the positive outlook is not across the board.
- When JobKeeper and JobSeeker end in March next year, less affluent areas of Sydney might feel the financial pressure more
- Units have also not fared as well as houses in Sydney due to oversupply. Many unit owners are selling up as they upgrade to houses. Many units owned by investors are leased to international students or temporary NSW residents. With the borders having been closed and people movement comes to a halt, many units are sitting empty and some investors have been forced to sell to release funds
Real Estate 2021: Our advice
If you are looking to buy a long-term family home, you should buy as soon as you are financially and emotionally ready.
If you are looking to buy an investment unit, you may want to wait a little bit longer as the over-supply is not likely to drop.
As always, prices are largely dictated by the level of supply and demand. If we see a lot of new supply in 2021, prices may remain stable. But if supply is limited, then it is highly likely that prices may continue to surge.