Kitty & Miles 2021 Property Market Review
Get out the streamers! Pop open a bottle of bubbly! The end of the tumultuous year that was 2021 is finally here!
With the ups and downs of an erratic market now behind us, what better time to take a glance back at the property market to better prepare us for the year ahead?
According to Core Logic, Sydney house prices are up 29.1% for the year, with apartments up 15.3% – a surprise to many, considering Australia was in lockdown for much of 2021.
Though the 2020 market was rather restrained, by January 2021 almost every sale in the first half of the year exceeded the expectations of agents and vendors alike.
Buyer demand regularly exceeded seller supply, and Core Logic’s data showed the number of transactions in Sydney had increased to 35% in 2021 compared to that of 2020.
Marketing campaigns were rapid, with 25 days being the average number of ‘days on market’, giving the illusion that house availability was low when buyers were on the hunt for properties.
2021 was a difficult year for landlords, with little financial relief during the repeated COVID lockdowns. However, though the drop in rents during the height of the pandemic period was an added pressure, many landlords were compensated by the increase in property value overall.
In fact, property prices had risen so much that we saw a record number of landlords sell their investment properties to avoid lower rents. It was a rewarding move, and many benefitted financially by selling their property while the market was hot.
In 2021, there was a huge increase in properties sold ahead of auction as opposed to under the hammer at the peak of the property boom. Agents were so confident that their properties would sell that many even delayed booking auctioneers until the week of the auction!
Perhaps most surprisingly, some homes even sold for 40-50% more in 2021 than their purchase price in 2020! Now, that’s one way to make a profit.
Banks and mortgages
Here’s a quick little lesson in how banks decide your mortgage.
An uprising in the market increases an upgraders’ buying capacity through leverage. So, if a family owns an apartment with $1 million equity in it and wishes to purchase a $2 million home, the bank will typically be satisfied with the Loan to Value Ratio (LVR). As long as the household income can support a $1 million debt, the loan is approved and the family is able to bid on or buy a house.
However, if the family’s current apartment value increases by 15%, the family can borrow $750,000 in addition to the $1 million already approved by the bank. For this reason, a family with additional borrowing power is very intimidating to other bidders in the market.
Scenarios like this were not unusual throughout Australia in 2021. Along with super low interest rates, banks sold home loan debt into the market at extraordinary levels.
At the same time that APRA intervened in the market in October and November to increase the ‘serviceability rate’, retail banks increased mortgage rates. Suddenly, 1.89% fixed home loans were a thing of the past.
APRA and the retail banks were then successful in stalling the erratic conditions in November, while the odd property continued to exceed expectations – though this was the exception and not the rule.
So homeowners, take note. When considering this move and APRA’s history, it is clear that regulation and mortgage rates matter when it comes to predicting the market’s performance.
Who struggled and who benefitted?
While investors started making their way back into the market by the end of the year, the real winners in 2021 were the vendors.
Whether it was those downgrading, banks selling money, real estate agents selling homes or investors who were already in the market, the vendors prospered where first home buyers, upgraders, property managers and those selling before buying struggled at one point or another throughout the year.
On that note, let’s all breathe a sigh of relief as we farewell 2021 and welcome in a new year full of fresh opportunity.
Merry Christmas, friends!