Real estate boom could last longer than you think: here’s why

Fears of a Covid property collapse were replaced by record house price rises, and one key factor should drive them further forward.

Aussies who own real estate have had a pretty good few months.

Home values nationally surged 7 per cent from March to May, according to CoreLogic, while annual growth in house prices is between 9 and 21 per in all state capitals except lockdown city Melbourne.

There has been frenzied bidding at auctions and some buyers are spending hundreds of thousands of dollars above asking prices.

And lately we’ve seen many experts warning that the heat will soon come out of our crazy housing markets and slower growth is expected.

While annualised growth above 20 per cent can’t continue for long before causing huge affordability issues, it looks like there is little chance of a sharp retreat any time soon – because of the unique supply and demand situation that Covid created.

Auctions have been crowded affairs across Australia lately. Picture: Annette Dew

Remember in April last year when some property doomsayers forecast house price collapses of up to 30 per cent?

They were just a tad off the mark there, weren’t they? Credit should be given to governments and banks for helping to prevent property pain by offering repayment holidays, JobKeeper handouts and homebuyer incentives.

Hundreds of billions of dollars of Covid stimulus have worked wonders, but now the laws of supply and demand are likely to step in.

In 2020 there was a pile of first homebuyer help available in the form of the First Home Loan Deposit Scheme and the HomeBuilder program.

That saw first home buyers flood the market while investors largely sat on the sidelines – some licking their wounds from Covid-related rental pauses and eviction bans.

But investors are back in town, and experts say they are poised to drive the next wave of real estate demand this year and into 2022.

And after investor demand dries up, Australia should have a third wave of property interest coming from migrants as the Federal Government allows people to move to Australia again. Eventually. Whenever that may be.

Before Covid struck Australia was welcoming between 160,000 and 190,000 new migrants each year for almost a decade.

And that was in normal times, before Australia’s excellent record in controlling Covid made us an even more desirable place to move to. All we need is the doors to open once enough people are vaccinated.

The Economist magazine’s report last week ranking four Aussie capitals among the world’s most liveable cities – with Adelaide leading the way at number three globally, Perth six, Melbourne eight and Brisbane 10 – adds even more allure.

This should fuel more demand for our housing, and that demand will keep prices healthy because there doesn’t seem to be any great surge in supply – partly thanks to a skills shortage among key trades.

So we’re back to supply and demand being a key reason why property market strength could run for several years – as long as sharp rises in interest rates don’t stuff everything up.

The true value of any asset – especially property – is what someone is prepared to pay for it.

People are currently paying a lot, and future waves of demand mean many should enjoy buoyant prices for a few years yet.

Originally published as Real estate boom could last longer than you think: here’s why