“The material decline in mortgage interest rates, extra savings from not spending on holidays and leisure and generous income support from government and housing market support specifically, has seen property prices rise dramatically in the past six to nine months, past the point to where they would have risen under a no-covid scenario.”
The pandemic also contributed a huge hit to the supply of homes, he added.
“Our analysis of dwelling approvals in the big cities shows that in Melbourne and Sydney there are 25,000 and 20,000 respectively fewer houses and units available than would have been the case in a no covid scenario,” he said.
There were 20,000 less houses available in Sydney due to the pandemic. Picture: Gaye Gerard/NCA NewsWireSource:News Corp Australia
Huge covid premiums
Melbourne is also expected to have one of the biggest jumps in prices with a 24 per cent leap due to the pandemic, with the average house price expected to sit at $940,000.
However, the covid premium isn’t as high as in other cities as it only adds on an extra $35,000 to the cost of a house by 2023, as people from Melbourne fled the city after multiple lockdowns last year.
Hobart and Perth were predicted to experience a huge 35 per cent jump in prices in 2023 due to the pandemic. The average price of a house in Hobart is expected to rise to $701,000 compared to $651,000 if the pandemic had not hit, meaning homeowners will have to shell out an extra $50,000 to buy.
Perth owners will only need $17,000 more to secure a home, although the KPMG modelling showed that prices will have jumped to $667,000 in 2023, up from an average of $495,000 in 2019.
Adelaide is also set to experience a rise of 19 per cent in house prices, meaning people will need to stump up an extra $39,000 to secure a place, which is expected to hit an average of $576,000 in 2023.
In the Top End, potential homeowners are also facing a hike of $46,000 to buy as prices rise by 7 per cent compared to a predicted drop of 3 per cent if the pandemic hadn’t taken hold.
It means the average house price in Darwin rises from $470,000 in 2019 to a positive upswing of $501,000 by the end of 2023, rather than a taking a hit in value down to $455,000.
Darwin housing values were set to drop but the pandemic has pushed them up. Picture: SuppliedSource:Supplied
The KPMG modelling also found short term factors influenced skyrocketing house prices around Australia, including FOMO (fear of missing out), investors’ return to property (adding more competition) and Sydney’s insane prices influencing other markets around Australia.
Dr Rynne said the lift in house prices was good news for boosting Aussie’s financial confidence, but the soaring house prices had also further entrenched housing unaffordability, especially for first home buyers.
As the family home represents the single largest asset for many people, if house prices are rising then consumer confidence and spending tends to also rise at the same time, he added. “Conversely, when house prices are falling, then consumers tend to get worried about the short term outlook and they save more and spend less” he said.
“This is exactly what happened during the first six months of the pandemic. The economic outlook was uncertain, house prices fell, and discretionary consumer spending declined. As households’ confidence improved – consistent with Australia’s positive approach to managing Covid-19 – house prices rose, wealth improved and spending increased.
“A consequence of this price differential pre- and post-covid is the fact existing homeowners will be the winners, whereas those trying to get into the housing market will find it even harder as price increases in property will grow at rates faster than what most people can save.
“This simply means the amount required for housing deposits will now be even higher than would have been the case if the pandemic did not occur.”
Brendan Rynne, chief economist at KPMG Australia, said soaring house prices are good for consumer confidence, but bad news for first home buyers. Picture: SuppliedSource:Supplied
But it’s not all bad news for Aussies looking to realise their home ownership dream.
Soaring prices will temper over the next two years due to mortgage rate rises and lower population growth as a result of a fall in migration, with Australia’s population now anticipated to be lower by about one million people by the end of this decade, found KPMG.
“This reduced population growth will feed into the property market through a combination of ways, including reducing the immediate demand pressures for accommodation as Australia’s border remain shut to both returning travellers and foreign migrants,” the report noted.