The five big residential property questions for the first half of 2021

After last year, sales are off to a strong start but can it last? Picture: Getty

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The Christmas/New Year period in the residential property market is usually quiet, but this year market activity has returned much earlier with strong early sales volumes. 

Over the first four weeks of 2021, the number of properties listed for sale on realestate.com.au that have had their status changed to sold is 28.2% higher than it was over the same period in 2020 and 38.2% higher than that period in 2019. 

While the market has seen the momentum of late 2020 carry  into early 2021, here are the five major questions for the first half of 2021.

How strong will sales volumes be? 

The housing market has started the year at a cracking pace in terms of sales volumes and with COVID largely contained and the lowest borrowing costs on record, I am expecting a bumper first half for property sales. 

While sales are expected to be strong, that will of course be dependent upon stock coming to the market. You can’t transact if there is nothing to buy. 

Will vendors finally start to awake from their slumber? 

Over the past few years there has been a persistent low volume of established housing stock listed for sale across the country. Throughout much of 2020 there was good reason for vendors to resist listing their property given so much uncertainty. 

Looking ahead to the first half of this year, I believe that we will see a lift in the supply of new properties listed for sale. The combination of strong demand, rising prices and the lowest borrowing costs on record is expected to result in vendors feeling more comfortable listing their properties. 

What is going to happen with rents? 

Broadly speaking the commentary around the rental market has been that it has struggled in 2020 with falling rents and while that is true of inner-city apartment markets, there have been plenty of areas of the country where demand for rentals has increased. These areas have generally been outer and near capital city lifestyle markets. 

While the rental marker in inner-city areas has been tough, in outer suburbs demand has been high. Picture: Getty

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The first quarter of any year is typically the strongest in terms of rental demand and price appreciation however, this is largely driven by new arrivals into cities from both overseas and interstate. With movement severely diminished this year I would expect the first quarter of 2021 to be relatively weak in terms of rental growth but thereafter I think rents will grow albeit the profile of the areas in which rents are increasing is likely to be away from the inner-city unit markets. 

Is HomeBuilder going to be further extended past March 2021? 

The HomeBuilder stimulus has been extremely effective in encouraging first-home buyers to purchase due to the generous grant, but it has also helped stimulate new building and keeping tradespeople busy.  

The latest data from federal Treasury shows that since the inception, 75,143 people had applied for the grant, 80% of which were to build a new home and 20% to rebuild. 

Looking at lending to first-home buyers, it has been on a clear upward trajectory with the value of lending reaching an historic high in November 2020 and up by 53.9% since its recent low in May 2020. 

HomeBuilder was initially scheduled to finish in December 2020, and it has already been extended to March 2021 with the value of the grant reduced. 

Any further extension is likely to be based on several factors including how the economy is faring, vaccine rollout and the state of international borders. No doubt, many tradespeople and developers will be hoping there is a further extension. 

Will we see a mortgage default cliff as stimulus is wound back? 

Since the onset of COVID and the subsequent lockdowns, lenders have been offering repayment holidays to mortgage holders and business. 

Data from the Australian Prudential Regulation Authority (APRA) shows that at the peak in May, 11% of all mortgages were on a deferred payment with the share falling to 3% by November 2020. 

Repayment holidays have dropped dramatically but what is less clear is how many mortgages have not gone on to deferral, but the repayments have continued to be supported by JobKeeper and JobSeeker payments. 

Repayment holidays have dropped but there could be an increase in households struggling to repay their mortgage with support packages being phased out. Picture: Getty

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With both JobKeeper and JobSeeker being reduced and phased out over the first half of 2021 it is possible we could see an increase in households struggling to repay their mortgage. 

Undoubtedly the situation could have been much worse without the federal government support measures and any cliff is likely to be much smaller as a result. 

Nevertheless, without some targeted extensions to support packages it is likely that we will see some increase in forced sales of properties in 2021.