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How does the Australian property market compare with overseas?

Promoted by IG

In these unprecedented economic times, national property markets can act as a useful barometer to the health of the economy. In Australia, the property market has been a hot topic of conversation in recent months, with gloomy predictions of a bursting of the so-called Australian property bubble.

Image: Piqsels

However, data released by CoreLogic at the beginning of November confirmed that the nationwide average of residential property values down under had risen by 0.4% in October. Each state reported month-on-month increases except Melbourne, which bore the brunt of the toughest lockdown restrictions.

Aside from house prices, reviewing the performance and confidence in the Australian dollar is also a useful way of gauging the temperature of the economy. By evaluating the major forex pairs that the AUD is involved in, we can ascertain whether Australia’s finances are better or worse than other developed economies overseas like the Euro or US dollar. These tools are not only handy to those in the world of FX trading, they are also helpful to property professionals, getting a picture of whether continued growth in Australia’s property market is sustainable.

Although the AUD performed significantly better than the Euro earlier in the year, Australia’s own lockdown measures have pared those gains in the latter half of 2020. It’s a similar story in the AUD/USD forex pair, where the USD struggled against the AUD in March but is now worth more against the AUD in November than it was in January.

There is economic data that suggests the Australian property market bubble can only go so far. New figures from Digital Finance Analytics (DFA) revealed that over 1.5 million households consider themselves to be in ‘mortgage stress’. Furthermore, mortgage repayment holidays are ending and many of Australia’s leading banks and lenders anticipate a rise in defaults in the coming months. At the end of September, 9% of all mortgages were being deferred. Moreover, with unemployment rates almost certain to rise in 2021, and immigration levels reducing significantly, supply could start to outstrip demand.

How does Australia’s property picture compare with other nations?

There is no two ways about it: the impact of the pandemic is affecting the economy in all four corners of the globe. With this in mind; are residential property markets elsewhere equally as precarious as the Australian market?

Average property values in the UK break the £250,000 barrier

Image: Piqsels

Britain’s leading mortgage lender, The Halifax, part of the Lloyds Banking Group, has confirmed that average property prices across the UK were 7.5% higher year-on-year in October. It cites the changing demands of homeowners in recent months, with home-based workers seeking extra space.

However, it warns of “downward pressure” on property values in Q2 2021 as the economic fallout and likely rise in unemployment bites. In addition, the UK government’s stamp duty holiday for properties valued less than £500,000 expires at the end of Q1 2021, so demand is almost certain to slump as the UK enters next summer.

Japan experiencing supply and demand issues

Japan is the world’s third-largest economy. It experienced its sharpest decline in history during Q2 2020, with well over a quarter (27.8%) of the Japanese economy lost. Even before the onset of the pandemic, the Japanese economy was sensitive to other geopolitical tensions, most notably the ongoing US-China trade war.

The issue with the Japanese residential property sector is that demand and supply are falling simultaneously. According to the Land Institute of Japan, sales of detached properties in its capital Tokyo were down 7.8% year-on-year in H1 2020. Meanwhile the number of new-builds completed in the same period were also down 11.4% year-on-year.

US real estate market still hot

The US property market has experienced similar traits to the UK market, with a big spike in property values – the largest in six years according to S&P Case-Shiller’s Index. The 7% rise in annual values in September 2020 was the biggest gain since September 2014. Average values are almost 23% higher than the previous peak of 2006.

Some senior economists predict that the property market will remain buoyant through the winter, driven by two factors. First, record-low mortgage rates, and second, a rise in the number of people moving from urban to suburban areas. Furthermore, the National Association of Realtors notes that the US housing supply is at an all-time low, which will almost certainly keep property values hot.

It’s clear that the real estate market is by no means plain sailing in any of the world’s most established economies, as lenders and homeowners alike hold their collective breath as we move into unchartered waters in 2021.

How does the Australian property market compare with overseas?

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