At the start of the year there were a lot of grim predictions by many economists and experts suggesting the property market would collapse. But most of the property pessimists have now changed their mind.
Despite going into recession with rising unemployment, Australia has survived the Covid-19 pandemic better than many other countries. Our property market has remained quite resilient.
The 2020 budget, with its strong focus on creating employment and increasing consumer confidence, has provided an encouraging outlook for the economy and the Australian property market. Furthermore, the bringing forward of tax cuts will increase the borrowing capacity and housing affordability for many home buyers. Also, the near zero interest rates with the outlook for rates to remain low for several years is good for borrowers, although not so great for savers.
Additionally, the announcement by the treasurer to make borrowing easier and more efficient for everyday Australians by loosening lending restrictions will free up credit and further underpin the property market. Because what gives property its market value depends on two factors:
1) what people are prepared to pay for it, and more importantly
2) what they are able to pay for it
What they are able to pay comes down to their ability to obtain credit. Being able to borrow more when looking to buy property will eventually push prices up.
Moreover, the tax and job incentives announced in the budget are designed to boost our economy by giving taxpayers more money, but these will only work if people are willing to spend it. That is why the recent rebound in consumer sentiment in the October figures is a good sign that confidence will return to the market quicker than expected.
The latest CBA economics report says the evidence continues to mount that Australia’s housing market is going to come through the Covid-19 pandemic largely unscathed. The Westpac consumer survey also reveals a strong uplift in consumer confidence.
Apart from confidence, easier credit and lower interest rates are two important drivers of the property market, but what is even more necessary for property price increases, is population growth. Population growth boosts economic activity and demand for property.
This means long term prices cannot rise substantially until we get immigration pumping again. It may take two or three years before we get back to the levels of migration we were at prior to Covid-19. But Australia remains attractive and is seen as a safe place to immigrate to, especially compared to the USA or the UK.