Post-COVID house prices leave 2020 behind

Prices rose a rapid 1.9 per cent month-on-month in February, accelerating sharply from the 0.5–0.6 per cent gains over the previous three months. 

" Buyers are taking advantage of historically low interest rates, particularly fixed rates, as well as various government support programs.”

This strength was evident across all capital cities, with Hobart (+2.4 per cent) and Sydney (+2.3 per cent) the strongest and Adelaide (+0.8 per cent) and Darwin (+0.9 per cent) making the smallest gains.

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Daily house price data suggest the gains in March will be even stronger. Prices are now above levels seen in February 2020 (before the real onset of the pandemic) in all capital cities bar Melbourne where prices are still down 1.5 per cent year-on-year.

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Owner-occupiers are driving the market with new housing loans up 80 per cent since the low in May. Buyers are taking advantage of historically low interest rates, particularly fixed rates, as well as various government support programs. First home buyer lending has also grown, supported by government support in the form of first home owner grants and reduced stamp duty.

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Investor activity is also growing strongly (+62 per cent from the low in May) but given earlier weakness its share of total new finance remains low at 16 per cent compared with an average of 25 per cent over the previous decade.

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The strength in sentiment is putting upward pressure on prices with low stock levels adding to the fear of missing out (FOMO) sentiment emerging in the market.

ANZ Research now expects price gains of around 17 per cent across the capital cities (up from 9 per cent previously) in 2021. With interest rates the primary driver of price gains, ANZ Research sees strength across all capital city markets.

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However, the first half of 2021 is likely to be stronger than the second half. By June ANZ Research expects prices to be rising at a more moderate pace given the end of government programs like JobKeeper and HomeBuilder and a lift in fixed mortgage rates.

By year end though, ANZ Research expects regulators will step in with macroprudential controls to address the overheating market with the exact measures likely to be dependent on how the market develops over the next six months or so.

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Felicity Emmett is Senior Economist and Adelaide Timbrell is Economist at ANZ