Australia's property boom set to continue in exceptional winter season

The Australian property market usually experiences a seasonal slowdown in the winter months, but experts say robust buyer demand and unseasonably high sales volumes point to continued price growth in a stronger-than-usual winter season. 

Director of economic research at realestate.com.au Cameron Kusher said while he’s not expecting an early spring for the housing market, the COVID-induced property boom is showing no signs of a dramatic slowdown over the coming months.

“We are still seeing weekly preliminary sales at volumes similar to spring of last year and demand remains at very high levels. While it won’t be the new spring, the winter housing market looks set to be much more active than what we see in a typical year,” Mr Kusher said. 

“New listing volumes have risen over recent months, but I would still expect there will be many sellers that decide to wait out the next few months and list their homes for sale in spring,” he added.

The country’s two biggest auction markets, Sydney and Melbourne, are both headed for super Saturdays during the first weekend of winter, with 1021 auctions currently scheduled in Sydney and 1393 scheduled in Melbourne, although that number is expected to be impacted by an extended lockdown.

Mr Kusher said Melbourne’s lockdown shouldn’t have a major impact on the city’s property market, provided it doesn’t go on for too long.

“Two weeks’ worth of lockdown shouldn’t impact Melbourne too much and things will recover fairly quickly; however, the longer the lockdown – remembering there is no longer any JobKeeper – the more scarring there will be and [Melbourne’s] winter selling season would quite likely be slower than it otherwise would have been,” he explained.

He noted Melbourne recorded a greater number of preliminary property sales last week compared to the previous week, despite some auctions being cancelled or rescheduled due to the lockdown.

“At least initially in the lockdown, the Melbourne market was still operating with strength. It’s reasonable to expect when lockdown ends, assuming that isn’t too long, it will bounce-back quickly.”

The impact of Melbourne’s lockdown on the city’s property market will depend on how long it lasts. Picture: realestate.com.au/buy

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Victorian buyer’s agent and Real Estate Buyers Agents Association of Australia president Cate Bakos said vendors in southern parts of the country tend to prefer selling in spring due to warmer weather and more positive buyer sentiment, creating a winter stock shortage that cannot keep up with demand.

“I feel that this year it will be exacerbated because we already have keen buyer interest, record low interest rates and a feeling of FOMO (fear of missing out) out there,” Ms Bakos said.

“I think stock levels will be low and days on market will be even shorter. Prices are likely to spike and buyers will feel that the competition is even tougher. Competing buyer numbers per property will be higher during winter in my view.”

Record-low interest rates are fuelling buyer demand

Data from realestate.com.au shows buyer demand and sales volumes are currently much higher than they were a year ago, continuing a trend seen throughout 2021 to date. 

Mr Kusher said record-low interest rates – which are not expected to rise until at least 2024 – are a key driver of buyer activity in the current COVID market.

“It’s a very big factor because people still can’t spend money how they would like to [amid border closures and other COVID restrictions]. The low borrowing costs and the likelihood of those low costs for a number of years means that buyers have some comfort and it has undoubtedly contributed to the strong demand for homes and the subsequent price increases,” he explained.

Mr Kusher said low interest rates will definitely play a part in the stronger-than-usual winter property market. “Although it is noteworthy that over recent weeks we have seen rates on longer-term fixed rate mortgages start to rise and that may give borrowers pause for thought about the prospect of higher rates in the future,” he added.

While low borrowing costs are a strong incentive for buyers, the high level of demand and limited stock for sale are driving fierce competition for properties, which is not expected to ease for some time, Mr Kusher said.

“Those aren’t ideal conditions for buying and ideally you’d like less competition and more stock, but with historic-low borrowing costs – which are likely to be in place for a number of years – it still seems as if those conditions are some way off and prices will be much higher at that time,” he said.

However, Ms Bakos said not all is lost for buyers, with spring shaping up as a promising time to get into the market. “[Especially] when I consider the agent feedback I’m getting about vendors planning to list in spring,” she said.

Buyers will come up against fierce competition amid low housing supply during winter 2021. Picture: realestate.com.au/buy

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On the flip side, Mr Kusher said low supply and strong demand point to favourable selling conditions over the coming months.

“We have seen increases in new supply coming to the market and they are at their highest level since October 2019; however, the overall stock for sale remains close to historic lows, so given that, it is still a good time to be selling a property,” he said.

Ms Bakos said sellers would be wise to take advantage of the current winter seller’s market.

“Sellers, don’t wait for spring. Play the supply/demand ratio to your advantage and consider listing in July/August in an effort to capitalise on buyer demand,” she said.

Prices will continue to climb, but a little slower

Australian property prices have risen exponentially since the pandemic began, on the back of low interest rates and a huge uptick in people seeking a lifestyle change.

“I expect prices to continue to rise over winter; however, with reduced demand, some stimulus removed and rises in longer-term fixed rate mortgage rates prices are likely to rise at a slower pace,” said Mr Kusher.

Property prices are tipped to surge by 20% over 2021 and 2022, with economists at the big four banks forecasting gains of at least 10% and as much as 17% this year. The pace of growth of early 2021 is expected to slow down, particularly next year.

“We don’t expect the market to come to a grinding halt, prices are expected to keep rising but we expect that the second half of this year will not see the market quite as strong as it has been over the first half,” Mr Kusher said. 

Property prices are not expected to drop over the winter months. Picture: realestate.com.au/buy

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First-home buyers will pull back, but investor activity will grow

For now, continued price growth won’t necessarily cause a slowdown in buyer activity, Mr Kusher said.

“What will put off borrowers is if they can’t borrow enough to get that new home. First-home buyers are a different kettle of fish as higher prices make it more difficult for them to enter the market, but remember they are a much smaller segment of the market than the combination of owner-occupier subsequent buyers and investors, both of whom typically already own a property,” he explained.

He said price growth and the end of the federal government’s HomeBuilder scheme will cause first-home buyers to pull back, but investors will continue to make a comeback over the winter months. 

“The comeback of investors will continue especially as price rises mean they have more equity to reinvest.

“Upgraders will continue to be the most active market participants,” he added.

Ms Bakos said she has been working with a blend of first-home buyers, upgraders, downsizers and investors in the lead up to winter, but has noticed a strong uptick in investor activity in particular.

“One thing is for sure – we have more investors now than in recent years,” Ms Bakos said.