How property has changed post-COVID

Looking back it is hard to comprehend the way COVID stopped the world and its impact is still affecting many people, industries and the investment sector.

CoreLogic has produced a report on the most significant property trends since the pandemic.

1. Housing values have surged since the onset of COVID

CoreLogic’s national Home Value Index (HVI) surged 32.5 per cent between March 2020 and February 2024, adding approximately $188,000 to the median value of an Australian dwelling.

Despite the strength in the headline figures, the housing market has moved through distinct cycles punctuated by changes in policy, interest rates and demographic shifts. Housing values initially dipped by 1.7 per cent between March 2020 and June 2020 before surging 30.8 per cent higher, finding a cyclical high in April 2022. The market slumped 7.5 per cent as interest rates rose from their emergency lows, but as inventory dried up and migration boomed, housing values commenced a new growth cycle in February 2023, rising 9.5 per cent through to the end of February this year.

2. Rental markets have tightened substantially

Vacancy rates are holding around 1 per cent and rental growth surging.

Nationally, rents have jumped 32.4 per cent since March 2020, adding approximately $150/week to the median dwelling rent.

3. Monetary policy has played a key role

As interest rates rose from mid-2022, monetary policy both stimulated housing demand and temporarily quelled activity.

A record portion of borrowers took advantage of fixed mortgage rates falling below 2 per cent through the middle of 2022, fuelling speculation of a ‘fixed rate cliff’ as the wave of fixed rate lending terms expired. So far borrowers have navigated higher mortgage rates much better than expected with mortgage arrears holding below pre-pandemic levels.

4. Inflation surged for a variety of reasons

Inflation surged on the back of unprecedented peacetime fiscal stimulus and low interest rates as well as global supply chain disruptions that were amplified by the war in Ukraine.

As COVID-related restrictions eased global demand strengthened. Inflation is now beating forecasts, fuelling speculation we could see rate cuts later this year.

5. Labour markets tightened

Once lockdowns and social distancing measures eased, labour markets tightened significantly.

Although labour markets are now loosening, RBA forecasts have the unemployment rate holding below 4.5 per cent through to at least mid-2026.

6. Demographic factors have influenced housing trends

Despite closed borders, housing demand remained strong during the pandemic due to a diminishment in household size.

Internal migration trends favoured regional markets through the pandemic but have since largely normalised. Open international borders saw overseas migration spike to record highs.

7. Despite unprecedented housing demand, a supply response is yet to be seen

Dwelling completions have held relatively flat through the pandemic to date, with supply chain constraints, materials and labour shortages, and a surge in construction costs creating a challenging environment for delivering new housing supply.

Property trend #1: Cheaper properties doing better than prestige

Historically, the upper quartile of the housing market tends to lead the cycle, both into the upswing but also into downturns.

According to CoreLogic Research director Tim Lawless, this trend has once again played out through 2023 and early 2024, with the upper quartile of the market leading the upswing through the first seven months of 2023, but slowing more sharply through the second half of last year and into early 2024.

This trend is most evident in Sydney, Melbourne and, to a lesser extent, Brisbane, where upper quartile values clearly led the 2023 upswing through the first half of the year. The trend hasn’t been evident in Perth or Adelaide where lower quartile home values have consistently recorded a faster pace of capital gains through 2023 and the first two months of 2024.

Source: CoreLogic

Property trend #2: Houses continue to outperform home units

Have a look at this chart from Ray White chief economist, Nerida Conisbee, and the massive difference in performance between home and home unit values.

Source: Ray White

Over the past 12 months, house prices have increased by 9.7 per cent while unit prices are up 7.4 per cent. However, growth has accelerated quickly in the first two months of this year. And while last year was characterised by strong price growth in smaller cities, so far this year, it is Sydney and Melbourne.

It has been a strong start to 2024 for Australian housing markets with house prices up already 2.2 per cent. If this rate of growth continues, it is possible that Australian house prices will increase more than 10 per cent this year.

Population growth was extremely strong last year and we didn’t build enough homes. In 2023, we needed 250,000 new homes but only built 175,000. The pipeline is looking even worse. Over the past 12 months there have only been 163,000 homes approved.

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