Property market hits the ground running in 2020

Posted by Luke Graham

We are only a few weeks into 2020, but our predictions about a strong start to the year are already beginning to materialise. REA reports a further hike in New South Wales’ auction clearance rate last weekend, now at 73 percent from an already-promising level around 70 percent at the end of 2019. Victoria and Queensland still have a little catching up to do on this metric, reporting 57 percent and 50 percent respectively.

A continued spike in property market activity has been anticipated since new lending bottomed out and began to increase from mid-late 2019. A number of factors contributed to the improved macroeconomic outlook for the Australian property market. These were mentioned recently in the research blog. They include a sustained period of low supply of new housing for a booming population, a federal election that took changes to negative gearing and capital gains tax off the table, relaxing of constraints applied by APRA to housing finance, as well as three RBA cash rate cuts over the course of the year. As a result, new housing finance has increased from less than $15 billion per month in early-2019 to $20 billion per month by the end of the year. We go into greater detail on all of this in our upcoming State of Play.

Although Sydney is yet again leading the charge during this most recent market upswing, it is important for investors to remember why Sydney’s recent correction occurred, and why it corrected to an extent not experienced in other markets. In other words, Sydney’s market continues to carry the general risk of unaffordability. A mortgage with an interest rate 75 basis points below what it was 12 months ago might strengthen your borrowing capacity, but that doesn’t mean it’s appropriate to pay this premium in a heated market.

Strengthening sales figures in many pockets around the country are being accompanied by some of the tightest rental vacancy rates we have seen in recent years. Brisbane reached its seasonal peak vacancy rate at the end of 2019 at 2.9 percent, which is below equilibrium. It’s also the lowest it’s been at that time of year since 2014. Inner-city suburbs such as West End, Toowong and Fortitude Valley are experiencing a similar trend after larger amounts of new housing supply temporarily softened the rental market between 2016 and 2018. Down south, the new year sees Melbourne now recording over half a decade of rental vacancies sitting below 3 percent.

In many parts of the country, there has hardly been a more opportune and affordable time to invest in property. 2020 has certainly started with a bang!

Posted by Luke Graham, on 21st Jan 2020