Updated: Nov 29, 2020
When COVID starting hitting our shores early in 2020, the doomsday scenarios for property were everywhere.
We heard a number of experts, economists and even the big banks come out with predictions that house price could fall by 40 per cent.
While the value of hindsight is great, it’s fair to say that these predictions were well and truly off the mark. In fact, according to CoreLogic data house prices fell across the country by around 3 per cent. And those falls came about largely thanks to Melbourne, being forced into a second round of lockdowns.
Since then, property prices have not only recovered but across a range of cities and areas, we are seeing and hearing only positive things. CoreLogic data shows the Melbourne property prices bottomed out in mid-October and, since then, values have increased by 0.44 per cent.
When the news was released recently, that 2-3 pharmaceutical companies had made significant progress on a COVID vaccine that showed 90-95 per cent effectiveness, it was another massive boost for property.
As we know, the property market is very much linked to overall sentiment. When fear was high and there was a lot of uncertainty, and widespread lockdowns, we saw confidence low and naturally low transactions volumes.
As 2020, comes to an end, we have seen a big change in sentiment and that will be a positive for property going into the new year.
We also have the RBA to thank for breathing life back into property as well. With mortgage rates and the official cash rate sitting at record low levels, the vast majority of property investors are going to be sitting on positively geared investments.
While for renters, the equation has changed, making it far more attractive to buy than to continue renting in many areas. First home buyers, in particular, have been cashing in on the opportunities that both state and federal governments have been offering.
And all of this has come about before a vaccine has ever seen the light of day.
While a vaccine will be another shot in the arm to overall confidence and could well mark the end of this saga, property markets are still weighing up what the long term effects of 2020 might be.
We’ve already seen a huge push into the regions and away from the built-up inner-city areas, which were the hardest-hit areas because of the lockdowns. Going forward, that is likely to be a trend that will continue.
We’ve been hearing plenty of anecdotal evidence that buyers are looking to purchase in areas that are 1-3 hours drive from major cities, offering the ability to both work from home and commute to work as required.
This could be a fundamental change that we see over the next few years, regardless of a vaccine being available as what has happened this year will be in people’s mind for the foreseeable future.
While a vaccine will certainly boost confidence, for me the real thing to watch will be just how long interest rates stay at these record low levels. We’ve already heard the RBA suggesting that rates will remain low for at least three years.
If a vaccine gets things back to normal quickly then rates could be under pressure to rise if employment rebounds. However, a vaccine is unlikely to stoke inflation which is the main goal of the RBA. Inflation was struggling in Australia well before we ever heard of COVID.
In reality, 2020 has just shown us how resilient Australian residential property really is and why it continues to be the leading asset class for investors. Hopefully, a COVID vaccine will just expedite the economic recovery both in Australia and around the globe.
Rowan Crosby is a Research Contributor at Wealthi. He is a published Australian journalist with opinions on Australian real estate, worldwide stock markets and commodities. Rowan has a particular interest in small-scale property development and investing.