KPMG: Aussie home buyers “paying COVID premium”

Modelling by KPMG shows that house buyers across Australia are now paying a ‘Covid premium’.

This premium will increase the average price of a house in Sydney by about $125,000 by December 2023, to $1.24 million.

By contrast, the average house would have been around $1.12 million at the end of 2023 if the COVID-19 pandemic had not occurred.

KPMG’s analysis also suggests that the COVID premium for house buyers in Melbourne will be restricted to about $35,000 due to factors such as Melbourne’s extended lockdown in 2020 and the growing number of residents who are moving interstate or to regional areas.

From The Australian:

“House prices were ready to jump prior to Covid, particularly in Sydney, where ­prices were below their long-run trend,” Dr Rynne said.

But the Reserve Bank’s massive easing of monetary policy settings – including slashing the cash rate target from 0.75 per cent leading into the health crisis to 0.1 per cent, and pumping nearly $190bn of ­virtually free money into the banks – had “turbocharged house prices over and above what they would have been were it not for Covid”.

The sharp fall in borrowing costs – particularly in fixed mortgage rates, which in some cases fell below 2 per cent – “swamped” the negative effect of stagnant population growth as the economic recovery gathered steam, Dr Rynne said.

I made a similar assessment in last week’s podcast with Nucleus Wealth.

Basically, the pandemic delivered:

  1. a sharp decline in mortgage rates; and
  2. booming household income (due to record stimulus).

Both of these factors have converged to drive property values to their strongest growth since the late-1980s.

An upcoming members’ special report will delve into Australia’s property boom in greater detail.

Unconventional Economist

Comments

  1. I find it hard to believe that majority of stimulus has been channeled into house prices. Majority would have been spent or saved due to unemployment issues. Closed borders means discretionary income has increased and it is this along with lifestyle decisions (WFH in an apartment) along with cheaper debt which is fuelling house prices.

    • Its the Australian way. High Iron Ore prices, up go houses, high beef prices, up go houses, high gas, up go houses. MOAR stimulus, what else but house prices? As has been mentioned ad infinitum, we do nothing else!

    • It’s mainly people with large cash pile putting money somewhere with the extremely low rates.
      You could get a fixed TD 3 year at 0.25% which would put you 1.5% worse of in real terms.
      Or you could take out a 2% 3 year fixed loan and take a punt that you would get a least 2.25% growth in house price over the year.

      The sentiment now, all over the world is that you cant keep money deposited at the banks. You either buy property of throw it in the stock market, and both of those have been going nuts.

    • The only thing that matters is interest rates. A household with two decent incomes can now easily afford to borrow up to a $1 million, P&I.

    • Jumping jack flash

      Poorly targeted and poorly communicated trickle-down economics fails again. Thanks, Scomo you clown.

      Scomo, as usual, couldn’t “read the room” and forgot that businesses had been conditioned to hoard and steal wages over the past decade or more. These habits are hard to break. Jobkeeper was paid to the businesses to pass onto their workers, but they didn’t because Scomo forgot to make it clear that they needed to do that by any means or excuse they could come up with, and in many cases businesses gave it back!

      A total failure at stimulus.

      The other stimulus effort was early access to super. It just so happened that 40K of super was around 5% or a bit more of a reasonable house in a capital city near you. It was almost certain that everyone would use their super windfall to obtain houses with. The surge of FHB coming online after decades of suppression showed it was pretty obvious that’s what happened.

      So after all that, all we were left with to actually “stimulate” the economy was the increases to dole payments, and there was just no way that we would achieve the inflation we needed from that.

      • Exactly! “Covid premium” is a euphemism for shockingly misallocated stimulus package, thanks Joshie.

        • Jumping jack flash

          These guys literally couldn’t organise coitus at a house of ill-repute. To totally stuff up handing out free government money and their one chance to fix the debt economy. It truly beggars belief.

  2. In a rational, logical, sensible, old-fashioned, sane, fair and just universe all of those percentages above and the figures in that last column would have a minus sign in front of them.