Just when you thought property prices couldn’t head any further north, we see records broken with amazing regularity.
In the Sydney suburb of Mosman, multi-million-dollar prices are becoming the norm. And despite the Covid outbreak, the average cost of a home in this postcode jumped from $3.6 million at the end of 2019 to over $4.2 million by the end of 2020.
Prices are surging across the rest of the city as well, with analysts at CoreLogic reporting that values jumped by 2.5 per cent in February 2021 alone.
While we are seeing sales results that keep defying expectations, it’s no wonder people are wondering what is causing the price surge and when the boom will come to an end.
Here we take a look at the latest insights from economists about the reason for the latest rise in property values and when to expect a slow-down.
Interest rates are fuelling price increases
According to Anthony Si, senior investment specialist for Citi, record low interest rates have contributed to the increase in Australian house prices. Because mortgages are cheaper, customers can afford to borrow more. In addition to this, banks have created more accommodating lending conditions, meaning there are more people who are able to buy.
Interest rates are not tipped to rise in the short term. Well-known economist Peter Switzer wrote that there has been a “perfect storm of great economic outcomes” and put his “best guess” at there being no change until late 2022 in a recent article titled Interest rates will rise but don’t panic.
More Australians are calling Australia home
Sydney has always been a liveable destination but it has become an enviable safe haven during COVID.
Many expats who made a base in London or Europe during the 2010s made the decision to return home in 2020. Working with buyer’s agents and local selling agents, these buyers were unseen as they negotiated and purchased homes while still living overseas.
Record low interest rates plus additional interest from home buyers has resulted in a shortage of supply on the market. Fewer people are selling their home so competition has become even tighter and is pushing prices up.
Economic fortunes look promising
While we aren’t out of the woods when it comes to the pandemic and there has definitely been an economic impact, Australia is also fortunate to be in a strong financial position.
In April 2021, the Financial Review’s Matthew Cranston reported, “Economists at ANZ, NAB and Westpac all say the economy is now bigger than before the Covid-19 crisis struck. While all four of the big banks have revised their unemployment forecasts, expecting a much lower figure of 5 per cent by the end of the year.”
Consumer sentiment is positive despite the challenges of last year. In addition, tradies, labourers and construction businesses are experiencing an increase in demand, which combined with supply chain delays, has slowed down a lot of jobs. For some people, this makes buying a home easier than building one.
An end in sight?
ANZ bank has revealed that Australians are looking at a collective house price surge of up to 17 per cent this year. For Sydney, the figure is 19 per cent.
ANZ added, “With banks likely to make it easier to get a home loan, the bank regulator could step in later this year and restrict borrowers from taking on too much debt compared to their incomes, which would slow price growth to 6 per cent in 2022.”
While there is no such thing as a crystal ball, this is an interesting forecast. It highlights that if you’re looking to buy a home, now is the time, before prices rise even further. For anyone interested in selling, particularly if they have a premium property, 2021 is also going to be a good year. With those low interest rates, strong economic confidence, a surplus of buyers and a lack of available properties, you have an excellent opportunity to make the most of your existing asset.
Want to know more about selling property in Mosman? Contact our team at De Brennan Property.