Canberra’s property market continues to defy analysts’ forecasts as values increased during May, according to CoreLogic’s Monthly Home Value Index results. Property values increased by 0.5% for the month and are up 1.2% over the quarter – pretty impressive considering how many forecasters incorrectly predicted property values would fall between 10-30%.
In this column on 14 May, I wrote “the best time to buy a property in 2020 was three weeks ago. The next best time is the six weeks ahead as normality (potentially) restores to the market”. Not only has some normality restored as restrictions have relaxed to permit on-site auctions and open homes, buyer sentiment has significantly improved. Those hoping the market would fall are facing the prospect of financial penalty from delaying their decision as values rise.
The number of established properties advertised on Allhomes each week has fallen from 167 during the week to 27 March to only 105 in the week to 29 May. On Saturday 30 May, Domain reported the preliminary auction clearance rate was 73%. The auction market has had low stock volumes since the clearance rate bottomed out at 39% on 4 April. In the time since, the auction clearance rate has exceeded 50% for each of the last six weeks of reported results.
At the time of writing (2 June), the Federal Government had indicated a likelihood they will commence providing grants of $20,000 or more to encourage people to buy new properties. This is an incredible injection of stimulus into Canberra’s new development market which is performing well without intervention.
The Allhomes ACT Real Estate Market Trends Report states the median price for multi-unit dwellings in Canberra is $472,000. On the basis of a stimulus package providing a grant of $20,000, the Federal Government would effectively be paying 4.24% of the median price of multi-unit dwellings. This reduces the amount of cash or equity a buyer would typically contribute to avoid paying mortgage insurance.
Stimulus with high perceived value brings forward future demand and places upward pressure on values. People who delayed purchasing decisions in March are now entering an environment where property values have increased and buyer sentiment has improved, prior to what happens upon commencement of government stimulus.
It will be interesting to see how long it takes before developers start to incrementally increase pricing in line with increased buyer demand. I have already seen evidence of this as developers who had solid sales months in May are now comfortable with their level of pre-sales.
Small price adjustments would unlikely be noticed by buyers, especially those qualifying to receive stimulus but could improve developer returns significantly. This may allow some developers to test the market with sites they previously failed to have the confidence the market would absorb.
Throughout COVID-19, the Government has repeatedly proven highly effective in supporting the parts of the economy it seeks to intervene with. Now it appears to have housing in its sights; only the foolhardy would bet against it.
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