House prices are outstripping pre-pandemic expectations: KPMG

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A new study from KPMG Economics on the Australian residential property market has revealed the significant impacts COVID-19 is having on home prices across the country, particularly compared to pre-pandemic expectations.

According to the KPMG study, forecasts made before the onset of COVID-19 anticipated that property prices would begin a ‘strong’ growth period in all capital cities, aside from Darwin, beginning in early 2020.

Instead, prices in every Australian capital city, with the exception of Canberra, recorded ‘nominal price declines’ between 0.3% and 2.8% in the months following the start of the pandemic. 

“Going into 2020, property prices in Australian capital cities were due for a cyclical upswing. Initially, the uncertainty caused by the pandemic and consequent economic downturn saw a 3 percent fall in prices in the June 2020 quarter,” said KPMG’s chief economist, Dr Brendan Rynne.

“But once market participants became confident that the pandemic would not result in a free-fall of home values, a combination of monetary and fiscal policies quickly began to push things the other way.”

As Dr Rynne notes, a combination of factors including government initiatives such as the HomeBuilder, RBA measures such as the term funding facility and lower home loan rates from lenders, helped steady the ship to the point where prices started to climb again.  

And climbed they have. Figures released by CoreLogic at the start of the month show that national home values increased by 13.5% over the 2020/21 financial year, which is the most significant increase in 17 years. 

Dr Rynne says that prices are likely to continue to grow in the next few years, though the rate of growth will be more subdued than the meteoric increases we’ve witnessed over the past nine months. 

“It appears these short-term positive factors have swamped the longer term-negative factors associated with the housing market such as lower population due to the fall in migration. But over the next 2-3 years the lower population growth and rising mortgage rates will moderate the current price surges.”

So which market is likely to be the biggest ‘beneficiary’ of COVID-induced measures - at least, when it comes to house price growth? 

KPMG’s study found that Sydney and Brisbane are on track to record the largest margins between pre-COVID and post-COVID expectations. 

Before the pandemic Sydney was anticipated to record nominal price growth of 13% between December 2019 and December 2023, but that growth figure has now been updated to 25%. 

Meanwhile, property price growth in Brisbane is now expected to be 19% over the 4-year period compared to a pre-COVID prediction of 8%. 

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