For Australian people, there is no better news than a clear national plan to reopen. It does not mean that the pandemic is over, or what will happen in 2022 is certain. It means that Australia has gone through the darkest moment and is now heading toward a better future. The plan gives the market a boost in confidence about 2022 and beyond.

Looking back at the situation in 2020, many of well-known economists or organisations believed that the market would adjust from between 10 pc to even 40 pc. We predicted a 10%-20% peak-to-trough decline, and most likely 10%-15% decline depending on government policy ( The Australian Property Market during the Pandemic ). Again, Lots of the predictions were wrong. Few was only right in certain aspect. Now let’s look at these figures. 

Figure 1. Established house price index.
Figure 2. Number of established house transfers.

Figure 1 shows the established house index for Melbourne and Sydney, calculated on a quarterly basis. It shows that the correction since the pandemic began is about 5.8% for Sydney and 4.3% for Melbourne comparing with the peak of the last property cycle in 2017.  Note that each number on the graph is a smoothed result using the sale data for the whole metropolitan area collected over three month period, which is not sufficient to capture the micro changes of the market in a certain area in a certain month.  The actual correction of the property market is much more significant than what it shows.  In some areas, the correction is even greater than 20% (this is supported by data collected during the second lockdown of Melbourne for certain suburbs).  Low transaction volume (property transfers) during the lockdown is another reason that the data in Figure 1 is inconclusive. The significant drop in property transfers can be seen in Figure 2. 

Let’s look at the median price variation for several suburbs in the metropolitan area of Melbourne.  We selected these suburbs because they had sufficient transfers during the pandemic to derive a meaningful median price.  Williamstown recorded more than 25% peak-to-trough correction since the pademic started (Figure 3).  This figure is 11% approx for Mount Waverley (Figure 4),  24% approx for Essendon (Figure 5), 14% approx for Balwyn North (Figure 6), 10% approx for Reservoir (Figure 7), 25% approx for Burwood (Figure 8), 9% approx for Northcote (Figure 9). Outer suburbs had a 10% or less peak-to-trough correction with a faster bounce back than the inner and middle suburbs (Eltham in Figure 10 and Frankston in Figure 11).  Few suburbs like Glen Iris (Figure 12) did not have prominent correction during the pandemic. Based on these figures, our forecast is not bad.

Figure 3. Median sale price for Williamstown.
Figure 4. Median sale price for Mount Waverley.
Figure 5. Median sale price for Essendon.
Figure 6. Median sale price for Balwyn North. 
Figure 7. Median sale price for Reservoir. 
Figure 8. Median sale price for Burwood.
Figure 9. Median sale price for Northcote.
Figure 10. Median sale price for Eltham.
 Figure 11. Median sale price for Frankston.
Figure 12. Median sale price for Glen Iris.
 Figure 13. History of RBA cash rate target.

Our forecast was also conditioned upon the government policy.  The Australian government has reacted fast to cushion the impact of the pandemic by providing various support for businesses and individuals, e.g. Job keeper, business cost assistance program, disaster payment, etc. The cash rate has also been cut to the historical low (Figure 13). The fiscal policy and monetary policy combined benefit the borrowers the most. They can afford bigger home loans. They are willing to borrow more and pay more. When RBA cash rate was cut to 0.1%, the market was fired up. In conclusion, the government policy has caused the property boom when the economy is no better than the pre-pandemic level. 

What will happen in 2022 and beyond?  

This is probably the most asked question at the moment. In early 2020, RE Logic wrote an article to comment on Australia’s future (Australia will prove to be the lucky country again). In the article, we outlined Australia’s advantage as an economy.  And we predicted that Australia would quickly heal the pandemic damage to its economy once it reconnects with the rest of the world.  One and a half years has passed. Let us now look at how well did Australia perform. Figure 14 shows that Australia recorded the 3rd highest GDP growth in the Q2 2021 to Q4 2019 GDP comparison, while most other G20 countries recorded a GDP contraction. Note that Australia is still in hard lockdown. There will be a GDP contraction for Q3 2021. However, for the same reason, we still see Australia going through a strong recovery once the lockdown is over and it reopens its border in 2022.  

Figure 14. Percentage change of the G20 quarterly GDP compared to the pre-pandemic level.

With the big picture set, Australia’s property market will stay strong, and it may even surprise the market. Again, this forecast is subject to government policy. Saying that, the current market is growing exponentially, which means it is overheated. It is almost certain that government will curb this exponential growth to bring it down to a moderate level. 

Real Estate Logic regularly collects socialeconomic data to provide analysis on the economy and property market. To get in touch with us, please email admin@realestatelogic.com.au.