Two years on how has COVID-19 shaped the housing market?

The global pandemic has activated remarkable shifts in the Australian housing market. From the temporary shutdown of cities, a new-found popularity of moving to regional areas and the introduction of various government home buying incentives, the COVID-period has had distinct impacts on the composition of buyers and the dynamics of the housing market. 

-Australian home values rose 25%, to record highs.

Despite an initial dip, housing values rose 24.6% between the end of March 2020 and February 2022. The graph below shows the cumulative change in the national CoreLogic Home Value Index since the onset of COVID-19. The index had a relatively small decline at the onset of COVID-19, with sales and listings volumes being far more impacted than prices. National home values declined -2.1% between April 2020 and September 2020, before soaring amid low interest rates, high household savings, government grants and a sharp reduction in the supply of housing.

-First homebuyer activity spiked

First Homebuyers Were A Sizable Part Of Housing Demand At The Start Of The Pandemic.  This Cohort Took Advantage Of More Affordable Housing Options Following The Earlier Downturn, Along With Record Low Mortgage Rates And Government Incentives. From June 2020, First Home Buyer Activity Surged Amid The Introduction Of The HomeBuilder Scheme, Used Alongside The First Home Loan Deposit Scheme, As Well As Other State-Based Grants And Stamp Duty Concessions For First Homebuyers. In January 2022, Loans To First Homebuyers Numbered 10,964, Above The Decade Average Of 8,682. Proportionally, First Homebuyer Lending Comprised 24% Of Owner Occupier Mortgage Demand In January, Which Is In-Line With The Decade Average.

-Rents rose 11.8% to record highs, while gross yields fell to record lows.

The CoreLogic Rent Value Index, which tracks changes in rental valuations over time, has also surged to new record highs. While rents saw a mild decline of -0.8% between March and August 2020, there was a swift recovery in these values, followed by a surge through 2021. Over the course of 2021, annual rent value growth was at its highest levels since 2008. Across Australia, median advertised rents since March 2020 have increased $30 per week to $470 per week.  

– Housing debt levels hit record highs

Rapid increases in housing and rent values in the past two years was largely the result of a sizable reduction in the official cash rate. High levels of housing debt, particularly where it has grown faster than incomes, creates a vulnerability in the Australian economy. 

-The premium of house prices compared to units hit record highs. 

Both the composition of the buyer pool and the impacts of COVID may have contributed to a record gap between house and unit values. Detached houses may have been in higher demand as Australians spent more time at home through the pandemic. Government policies such as the HomeBuilder grant may have also contributed to increased detached housing demand, due to tight construction timelines to qualify. 

The result is a record high gap between house and unit values. The graph below shows the median house value across Australia was at a record high 29.8% above the median Australian unit value, with a dollar value premium of around $182,000. This is up from just 8.5% in March 2020, or a dollar value premium of around $44,000 for houses.

-The rise of the regions

Migration trends over 2020 and 2021 revealed an increase in the volume of people leaving cities for regions outside of lockdown periods, and a decline in people leaving regions for cities. The result has been higher than normal housing demand against unusually low levels of listings across regional Australia, in both the sales and rental market. In lifestyle regions, which have become intensely popular in the past two years, new million-dollar markets have been created across areas such as the Sunshine Coast, the Illawarra and the Gold Coast, where median house values now sit above the million dollar mark. 

Where to from here? 

The current housing market upswing has delivered extraordinary value gains, providing a significant wealth boost for home owners, but larger hurdles to enter the market for non-home owners. But since April of 2021, monthly gains in national home values have softened. While some structural shifts through the pandemic, such as remote work, may sustain demand in regional Australia long term, it is likely that housing values will start to decline on a fairly broad basis later this year.