Why a Protracted Covid Pandemic Will Drop Home Prices in Closed Suburbs

A prolonged Covid pandemic could cause Australian house prices to fall or at least flatline in the suburbs more affected by lockdowns.

While property values ​​fell during the early stages of last year’s national lockdowns, they have continued to rise across Australia since late last year.

With interest rates at record lows of 0.1 percent and the banks offering mortgage rates at 2 percent, house prices continue to hit record highs in both capital cities and regional areas as more people are able to work from home.

Sydney’s median home prices during the first six months of 2021 rose 18.5 percent to an even more prohibitive $1.225 million, CoreLogic data showed.

But professional services firm KPMG said housing price increases “would moderate over the next two to three years” due to lower population growth.

A prolonged Covid pandemic could cause Australian house prices to fall or at least flatline in the suburbs more affected by lockdowns.

“Australia’s population is expected to be about a million people lower than forecasts before the pandemic by the end of this decade,” the report said.

“This reduced population growth will fuel the property market through a combination of ways, including reducing immediate demand for accommodation as the border with Australia remains closed to both returning travelers and foreign migrants.”

In the first half of the 2020s, KPMG chief economist Brendan Rynne predicted that house prices would rise in wealthier, more desirable suburbs closer to the city, but stagnate in poorer, suburbs where wage growth is moderate.

Metropole director Kate Forbes said house prices in less fashionable places were more likely to stagnate.

“If you also take into account that mortgages are currently the cheapest they will ever be, meaning there are no prospects of further rate cuts to help increase affordability, then it is likely that real estate price growth in these areas will stagnate,” she said.

Sydney’s worst hit areas for Covid cases are also in the far south west and west of the city, with the Fairfield, Liverpool, Canterbury-Bankstown and now Cumberland and Blacktown council areas subject to stricter stay-at-home rules.

In the first half of the 2020s, KPMG chief economist Brendan Rynne predicted house prices would rise in wealthier, more desirable suburbs closer to the city, but stagnate in poorer, suburbs (pictured is Fairfield during lockdown) where wage growth is moderate

In the first half of the 2020s, KPMG chief economist Brendan Rynne predicted house prices would rise in wealthier, more desirable suburbs closer to the city, but stagnate in poorer, suburbs (pictured is Fairfield during lockdown) where wage growth is moderate

The never-ending increase in daily Covid cases in Sydney also means immigration won’t resume until mid-2022, which would have left Australia closed to newcomers for more than two years.

The federal government’s fifth intergenerational report, released on June 28, predicted that population growth would be much slower until 2061 than in decades past.

The closure of the Australian border to foreigners in March 2020 saw the population shrink for the first time since 1916, during the First World War.

This put an end to two decades of super-rapid population growth, propelled by net annual immigration of over 100,000 and later 200,000 a year.

Professional services firm KPMG said housing prices would slow over the next two to three years due to lower population growth (pictured is a woman in Lakemba in Sydney's southwest)

Professional services firm KPMG said housing prices would slow over the next two to three years due to lower population growth (pictured is a woman in Lakemba in Sydney’s southwest)

Over the past 40 years, Australia’s population has grown at an average annual rate of 1.4 percent.

The Treasury’s Intergenerational Report predicted that this would slow to 0.8 percent by 2061.

Between June and September last year, Australia’s population fell by 4,200 people, or 0.02 percent, as more people left than arrived and births failed to make up for the shortfall.

This was the first population decline since 1916.

Covid bans on immigration are expected to reduce population growth to 0.1 percent in 2020-21, the lowest in more than a century.

The Westpac Bank predicts that real estate prices will rise 15 percent in 2021 and slow to 5 percent in 2022.

It had previously forecast a 10 percent rise for this year and next.

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