Insight

02.02.21  Buying Tips

 

Will 2021 Be A Good Year To Buy Property?

Will 2021 be a good year to make a move or get onto the property ladder for the first time in Sydney’s eastern suburbs?

Will 2021 be a good year to make a move when it comes to Sydney’s Eastern Suburbs property market? We explore the factors influencing the local market whether you’re looking to upgrade, downsize or get onto the property ladder for the very first time.

1. Prices are rising

COVID-19 was a trying year on many fronts, but not necessarily for Sydney property prices. At the start of the pandemic, experts were predicting home values could fall by more than 30% in a worst-case scenario. As it happened, prices remained remarkably stable - CoreLogic reported that Sydney’s median price dipped just -0.8% in the June quarter and another -1.6% over the September quarter.

Then in January 2021, Domain announced Sydney’s median house price rose an impressive 4.1% over the final quarter of 2020. That means, at just over $1.21 million, Sydney’s house price is the highest it’s ever been - surpassing the previous peak set in the middle of 2017.

Most market commentators expect that this trend will continue. ANZ Bank has forecast that Sydney’s median price will rise 8.8% over 2021. SQM Research forecasts Sydney prices could rise by as much as 7%-11% over the next 12 months, while Westpac anticipates prices will lift 14% between 2021 and 2023.

In other words, holding off buying today could mean that you’re paying more down the track - something that should get you thinking about making the move sooner rather than later.

2. Interest rates at record lows

Interest rates have been low for some time, but in response to the COVID-19 pandemic, the RBA cut the official cash rate to an unprecedented 0.1%. What’s more, the RBA has said that it intends to keep interest rates low for some time yet and doesn’t anticipate lifting the official cash rate for the next three years or so.

Most lenders have followed the RBA’s lead, cutting the rates on their home loans to unprecedented levels, so that many borrowers can access fixed-rate home loans at around 2% - something that must seem incredible for anyone who remembers the 18% interest rates of the late 1980s and early 1990s.

Low-interest rates can have an enormous effect on your ability to buy a home because it makes servicing a mortgage so much cheaper. If you were to borrow $1 million on a 25 year home loan at an interest rate of 5%, you’d expect to pay $5,846 a month. At an interest rate of 2.5%, your repayments fall to just $4,486 a month - a saving of $1,360 or 23%.

This can have an enormous effect on your ability to get into the market or move on and, as we’ve shown in the past, it can make the property so much more affordable even as prices go up.

3. The government is providing a helping hand

First home buyers have been noticeably absent from the Sydney property scene for some time. High property prices and high barriers to entry (including restrictive lending practices and the need to save a large deposit) have titled the balance in favour of homeowners, making it difficult for first-timers to get on the property ladder in our city.

State and Commonwealth governments have both committed to changing that, offering schemes and grants to help buyers into the market.

The NSW First Home Buyers scheme provides a one-off payment of $10,000 towards the cost of a newly built home. All NSW first home buyers receive a stamp duty on properties valued up to $650,000 and then concessions on properties valued up to $800,000. However, until August 2021, these thresholds have been lifted to $850,000 for an exemption and $1 million on concessions - so long as a first home buyer purchases a newly built home.

The Commonwealth government also offers a First Home Loan Deposit Guarantee scheme, which potentially lets first home buyers get a home loan with as little as a five per cent deposit without the need to pay lenders mortgage insurance. Given that saving a deposit is one of the biggest impediments to getting on the property ladder, this scheme can really help first homeowners out.

If you benefit from these schemes, 2021 could be a great time to buy.

4. The long-term economic outlook is strong

One thing that often makes people cautious about making a move is the possibility of an economic downturn. After all, paying a mortgage becomes pretty difficult if you lose your job or your business fails.

Right now, most economists don’t see dark economic clouds on the horizon. In fact, many believe that Australia’s handling of the coronavirus and sound fundamentals will lead to stronger economic growth over the next couple of years than we’ve seen in some time.

In November 2020, the RBA forecast Australia’s economy would grow five per cent over 2021 and another four per cent over 2022. To put that into perspective, we haven’t experienced an annual GDP growth rate over five per cent since the last Millennium and haven’t had a period of sustained growth at that rate since the 1960s.

The IMF may be more subdued, forecasting growth of 3.5% over 2021, depending on how successfully the world manages to roll out the COVID-19 vaccines. Still, that’s a long way from the subdued growth rate we’ve been experiencing most years since the GFC.

When the economy grows like this, many businesses thrive, unemployment tends to fall and eventually incomes tend to rise (something we haven’t seen for some time). Again, that’s good news when it comes to making a move and good news for the property market more generally.

5. Sydney is looking more and more attractive

Finally, it’s worth noting that not all market segments are constrained by interest rates and income growth. At the premium end of the market, where buyers often pay cash, property prices are just as influenced by the stock market, global economic trends and the amount of merger and acquisition activity taking place. Because of low sales volumes, prices at the top end can also be more volatile than in other parts of the market too.

In this segment, Australia is coming to be seen as one of the world’s most attractive destinations. Our economy and political institutions tend to function well, we’ve done a great job of controlling the coronavirus and the lifestyle is perceived as laidback and healthy.

For this reason, we’re seeing a lot of interest from ex-pats and others based in global cities such as New York, London and Hong Kong, who want to eventually move back home. This trend should help make sure the top end of the market also remains positive for the foreseeable future, making it a good time to invest in prestige property too.

Want more?

If you’d like to know more about buying trends in Sydney’s eastern suburbs over 2021, get in touch.

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