Most people would never expect housing markets to grow rapidly during a pandemic. However, that’s exactly what the world has seen during the coronavirus pandemic.
During the COVID-19 pandemic, Australia’s residential property market reached an all-time high of $8.1 trillion as of April 2021. Residential property values in every major Australian city have consistently grown, rising 6.8% in just three months.
The property market is now quadruple the size of Australian GDP and according to Yahoo Finance, “$1 trillion more than the combined value of the ASX, superannuation and commercial real estate stock combined.”
This boom has been great news for investors and sellers. Investors have been acquiring properties that are rising in value and sellers have been getting more than market value for their homes. Those who need cash but aren’t willing to sell are choosing to refinance their mortgage to take advantage of low interest rates that aren’t predicted to last.
A booming property market isn’t good for first-time buyers
Although the housing market is creating wealthy property investors, it’s also putting home buying out of reach for many first-time home buyers. Mortgage rates are low, but wages are stagnant and the market is highly competitive. Some investors are grabbing up properties for winning bids that exceed market value, leaving few options for first-time buyers who don’t have the extra cash to pay a premium.
Thankfully, the rapid growth has started to slow but hasn’t returned to normal just yet. Although experts predict it will continue to slow and become easier for first-time home buyers to acquire a property, that’s not happening yet.
Despite the market slowing down, it’s interesting to see that a pandemic created a surge in demand for properties, not just in Australia but in the United States, New Zealand, Germany, Peru, and China as well.
The biggest question is why? Why did Australia’s residential home market reach a historic high in just several months during the pandemic? It’s been speculated that people have been panic buying properties kind of how people were panic buying toilet paper.
Are people panic buying properties?
Although homes have been selling fast and for more than market value, it’s hard to say for sure that people were panic buying. They were acting based on expectations that the housing market would crash and prices would collapse. Every previous economic downturn has crashed the housing market. The difference this time is widespread government assistance that has been previously unseen. Nobody was expecting governments to step in and enact eviction and mortgage moratoriums. This has never happened in the past and it seems out of reach so it didn’t even occur as a possibility.
So-called ‘panic buyers’ made a good choice
It seems a little strange that so many people would buy up homes during a pandemic. However, with the price of lumber inflated by around 400%, panic buying homes doesn’t seem so crazy after all. Although it’s unlikely that people knew lumber prices would skyrocket, the decision to scoop up homes as fast as possible turned out to be a great investment decision.
With the increase in lumber prices, it’s costing around $35,000 more to build a home, at least in America. It’s hard to find the exact figure for Australia, but it’s likely just as high. Home builders can’t negotiate better prices on lumber. They have to pay the premiums just like everyone else.
When will the home buying frenzy end?
It’s hard to say when the current housing boom will slow down. Now that lumber prices are 400% higher, there’s even more reason for people to buy up existing homes. New constructions are still underway, but contractors are canceling contracts they can no longer afford to fulfill. Unfortunately, when buyers can’t afford to pay the extra lumber costs, there’s no other choice.
Currently, buying a home is not easy. There is a shortage of workers, lumber is expensive, and builders are limiting the number of projects they’re willing to accept. According to Marketwatch, materials other than wood are becoming hard to find. Materials like steel and even appliances are in short supply.
It’s unclear when the home buying frenzy will end, but since it’s slowing down it probably won’t last too much longer. Until then, investors with cash flow will continue acquiring properties. First-time home buyers might need to wait just a little while longer.