WHY SMART MONEY LOVES UNCERTAIN TIMES
COVID-19 has certainly turned a lot of long term trends in Australian property on their head. We are embracing immense change and enjoying many new choices relating to where we live, the type of homes we buy or build, our personal lifestyles and our ability to generate wealth through property.
COVID-19 has certainly turned a lot of long term trends in Australian property on their head. We are embracing immense change and enjoying many new choices relating to where we live, the type of homes we buy or build, our personal lifestyles and our ability to generate wealth through property.
Our theme for the McGrath Report 2023 is ‘chaos creates opportunity’. To me, the most interesting elements of the pandemic wash-up in our market are the reversal of some decades-old trends; the rise of the regions; the renaissance in the way we are living; and that many of us — particularly young millennials — are no longer necessarily constrained by big city affordability challenges.
Over the past 25 years, as Australian property has risen in value substantially — particularly in Sydney and Melbourne — affordability has forced many people to learn how to live in smaller spaces.
Along the way, the traditional Australian dream of a house on a quarter acre block changed. In its place, the desire for property ownership of any kind took over and we saw interesting new trends, such as families adopting apartment living in lifestyle locations and young people ‘rentvesting’.
COVID-19 has changed all this. The emergence of the home workplace has allowed people to buy larger homes in locations that suit their budgets and provide their dream lifestyles.
With work no longer anchoring people to the capital cities, we are seeing a significant scattering of the population to the regions, as well as outlying areas of major cities where large residential blocks of land and a sense of tranquil rural life combines with everything we love about city living, such as close proximity to shopping hubs, buzzing local café villages, and high quality restaurants.
As a nation of sun, sea and sand lovers, our most renowned coastal areas were the first to benefit. But as we explore in this year’s report, the ‘beach first’ mentality is shifting as many buyers find better value for money in Australia’s inland regions, including wine country and hinterland areas.
In addition to location changes, we’re also seeing a redesign of the ‘ideal’ home. Having separate office spaces for mum and dad to work, and the kids to study, has never been so prioritised.
As SJB architect Adam Haddow discusses in our report, people want their work spaces to be light and have a relationship with the outdoors, with a bit of separation between work and home areas.
The universal desire for open plan living — popularised in the 1990s — is changing as homeowners seek to create more flexible, separate zones using sliding doors, screens and partitions to enable privacy from other household members.
Now let’s talk about the market. The inevitable turn has begun, presenting new opportunities for buyers and sellers alike. Here are my thoughts on where we are headed over the next 12 months.
I’ve been through at least six market corrections in the last 40 years and this is certainly one of the fastest, with values down 10-15% in many areas of the East Coast.
But remember, this decline is coming off a 35-40% increase in the past few years. Queensland is showing more resilience but will probably see a similar correction eventually.
The unusual pace of this correction is directly related to the pace of official interest rate rises. But home loan rates are still well below the historical average for Australia, which is above 7%.
During the pandemic, many people used savings from not travelling and not going to gyms, cafes and restaurants during lockdowns to deleverage their debt.
A lot of that money is sitting in mortgage offset accounts, saving homeowners interest and giving them a cash buffer to comfortably absorb the impact of rising inflation and interest rates.
If you look at history, these periods of correction do not last long. In 2023, buyers will have more time to shop around while the market takes a breather over the next 12 months.
I think we have already seen the majority of price reductions due this cycle but it may get a little worse before it plateaus. I don’t foresee a huge rush of buyers coming in before prices rebound but the window of opportunity won’t last forever.
Smart money certainly loves uncertain times. Think of the ‘early adopters’ who left the big cities for the regions in 2020 and caught the massive wave of capital growth that ensued.
What are your opportunities in the 2023 market?
I hope you enjoy this year’s report.
JOHN McGRATH
MANAGING DIRECTOR AND CEO McGrath Ltd
