The major brokerage has predicted a strong, busy year for the property market in 2021 but noted that a price “cliff” might not come to fruition.
Loan Market executive chairman Sam White observed that the property market remained strong in 2020 through the coronavirus pandemic despite forecasts by some economists about property price drops.
Speaking to The Adviser, Mr White said that while he does not expect to see a “cliff” in property price rises, he pointed out that economic forecasts of steep property price decreases made at the peak of the COVID-19 crisis did not come to pass.
“It just shows that economists are so quick to pounce and talk the market down,” Mr White said.
“I don’t think they ever got it right. They should make it a law that the next time an economist talks the property market down, they should give us the last 10 predictions they have made and tell us how many have been right.
“Every single one of them have talked it down and none of them have been right. They keep talking so confidently about the future. If I was doing it, If I made as many mistakes as they’ve made talking about the property market, it would be misleading and deceptive conduct.
“I think there should be a royal commission into it.”
Following the Reserve Bank of Australia’s (RBA) decision to hold the official cash rate at 0.10 per cent in December, AMP Capital’s head of investment strategy and chief economist, Shane Oliver said that while average house prices are still below 2017 highs and household debt growth is slow, it may become more of an issue in 2021 if house price gains continue to gather pace and raise concerns about financial stability.
“In the first instance, this should drive a wind-back of government home buyer incentives, but, if this is not enough, pressure on the RBA and APRA to retighten lending standards may become apparent in the absence of an ability to raise interest rates given weakness in the broader economy,” he said.
While lockdown measures imposed to curb the spread of COVID-19 prompted forecasts of a 20 per cent drop in national home values in 2020, these forecasts were revised down to falls of between 5 and 10 per cent following the rollout of fiscal support from the federal government and loan repayment holidays.
Buyer demand to remain buoyant
Mr White said that as interest rates are poised to remain at record low levels for some period of time, buyers will continue to flock to the market.
He said the strong demand has been driven by owner-occupiers, particularly first home buyers (including in Victoria), although investors had gradually returned to the market in the last few months of 2020.
While Mr White partly attributed this demand to the federal government’s HomeBuilder scheme and acknowledged its role in the new home sector to boost economic activity and employment, he emphasised that home activity was occurring outside of new home builds.
“I don’t think it’s been a determinative factor because we’ve seen it elsewhere outside of new home builds,” Mr White said.
“But it has been an important feature in the market.”
However, Mr White said there is insufficient stock entering the property market, and said Ray White’s appraisal numbers, which are a pre-cursor to stock listings, are ordinary.
“They’re not as strong as what we hoped they’d be. Listings coming through are going to be good but they won’t be great,” Mr White said.
“I think we’re going to see some relative strength in the market because we’re seeing that demand from the mortgage side is quite strong. I think you’re going to see some price rises over the next quarter.”
Refinance activity softens
According to Mr White, the percentage of refinancing activity has shrunk, which he attributed to banks repricing their loans and offering clients price reductions in an effort to retain them.
“Brokers are going back to lenders now and saying, ‘my client needs to be re-looked at’. More lenders are coming to the party on that,” Mr White said.
“I’ve seen less refinances than there were because banks are responding with lower reductions, and giving clients price reductions to keep them.
“We think that’s a positive sign but refinances are still out there.”