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02 Feb 2021

Property outlook for 2021 - The rise of the first home buyer

By Anthony Si, senior investment specialist for Citi COVID-19 threatened to plunge the housing market into crisis, but its resilience has been astounding

Indictors suggest property markets are likely to perform well into 2021:

  • Historically low interest rates and the “likelihood” of rates remaining low for at least 3 years, will give home buyers and investors confidence.
  • Strong jobs creation, rising consumer confidence and improving business confidence.
  • Auction clearance rates have been consistently strong in the last quarter of 2020.
  • More buyers and sellers are in the market and transaction numbers have increased.
  • Banks are keen to write new business and bank loan deferrals have been consistently falling.


It's been a testing time for many households and small businesses. As Australia experienced it's first recession in over 28 years and unemployment became a major concern, there was concern the property market would plunge.

During the early stage of the pandemic, consensus seemed to be building that the national decline in property values could reach 10 per cent, with worst-case scenarios suggesting prices could fall by as much as a third."

According to property analytics group CoreLogic, between March and November last year, Australian home values fell just 1 per cent. In fact, October marked a 0.2 per cent increase in values, following a 0.7 per cent back-to-back increase in November, suggesting further acceleration in growth this year.

How do we explain this phenomenon? Is this once again the “Lucky Country” factor contributing to this mild house prices downturn in property values and leading up to a significant increase in home prices post Covid-19?

We examine a few factors that may explain the relative stability in housing:

RBA support leading to low mortgage rates

The Reserve Bank of Australia has been out in full force to support the economy during the pandemic, its actions have included reducing the official cash rate target to 0.1 per cent. The reduced cash rate has lowered bank funding costs, leading to record low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 1 per cent reduction in the cash rate can lead to an 8 per cent increase in property values over the following two years.

In fact, it is not uncommon for housing markets to increase in value during negative economic shocks, or periods of rising unemployment. This is because the monetary response to rising unemployment and falling consumption, is often to lower the price of debt. Those that still have a secure income during these shocks may be more inclined to borrow and buy as a result.

Mortgage repayment deferrals

With unemployment through the middle part of last year on the rise as impacts from the pandemic increased, mortgage repayment deferrals become a “life-saver” for many owners

Those that did not want to sell amid economic uncertainty due to an inability to repay their mortgage, did not have to. The resulting low levels of stock to sell helped to insulate house prices from panic selling.

Indebted households were further supported by the RBA’s actions to lower interest rates and the cost of funding for banks, which is lowered the cost of servicing debt as incomes were impacted.

Continued leniency for mortgage repayment deferral, particularly for owner-occupiers, is in the interest of the banking sector, and extends the ‘bridge to recovery’ as the economy gradually recovers.

First home buyers leading the charge

Record low rates, a brief dip in property prices and new government incentives have driven a surge in first home buyer (FHB) activity, as auction clearance rates return to pre-pandemic levels.

Reserve Bank governor Philip Lowe told a parliamentary committee late last year: "It's actually a good time, if you're a first home buyer, to buy the property you've wanted".

But first home buyers may already be one step ahead of him, according to Australian Bureau of Statistics (ABS) lending figures. In October, the number of first home owners (on occupier-occupier loans) increased by 13,481. Although it was much higher the month before (+3.4 per cent), the ABS noted this was an enormous jump (+30 per cent) compared to "any pre-COVID month since 2009".

The dream's intact

As we all know, owning a home is a true “Australian Dream,” First time home buyers are definitely taking advantage of low rates and government supported policies to accomplish their home owning dream, especially younger generations. The so-called “Fear of Missing out” is playing a big part of this house hunting push, and it may well extend through the year and into 2022, as buyers take comfort in the RBA stated intention in multiple speeches in the second half of last year that it does not expect to increase cash rates for at least three years. In February, it further emphasized this stance, and also kept rates on hold, when announcing its monthly interest rate decision. 

We know the housing market has its own economic cycle, and the Australian housing markets were not immune to the Covid-19 pandemic. Luckily, through the early actions and prompt support from government, the RBA and financial institutions, created a shield that protected Australian households from predictions of significant price movements. It provides the background to create your own luck in this “Lucky Country.”

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This information is not advice and has been prepared without taking account of the objectives, situations or needs of any particular individuals. Any individual should consider if the information is appropriate for your own situation. Individuals are advised to obtain independent legal, financial, foreign exchange and taxation advice prior to making financial decision. Past performance is not indicative of future performance. Citigroup Pty Limited ABN 88 004 325 080, AFSL and Australian credit licence 238098.

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