Property boom survival guide: Should you have a fear of missing out?

By JP Pelosi ·

There’s been plenty of talk about how hot the property market is in 2021. Listings are up, auction numbers are spiking and home loan deals are being seized upon. Presumably many buyers have seen some daylight amid Covid-19 related news and fronted up to open homes with open wallets.

For those who have done their homework and have saved for a deposit, there just might be a window of opportunity. For others, a little research goes a long way.

Let’s look at this so-called ‘boom’ market in brief:

  1. Interest rates on home loans are lower than ever and while this is great news for borrowers, it can prompt some to hurry without the requisite deposit or appropriate long-term budget. 
  2. Housing supply in popular Sydney and Melbourne suburbs is typically low, which can often see demand outstrip supply. This is often where the fear of missing out ("FOMO") takes hold.
  3. Auction clearance rates are being touted as the highest in years, which is unusual for February. Autumn generally sees auction markets peak.
  4. First homebuyers are eager to get into the market and grants like the first homebuyers scheme are perhaps urging them to act before time runs out on financial support or on their eligibility.
  5. Price movements on one side of a city are typically very different to the other - no two suburbs are the same.

Is there really FOMO when it comes to property?

Media stories of ‘boom’ times tend to stoke some of the fear. We’ve been told by many property pundits of late that there is better housing affordability around the country, helped by a low interest rate environment and reduced activity with lockdowns and border closures. By all reports, first time buyers saw this last year as cashed-up investor types withdrew. 

Sellers noticed the growing interest, too, and started adding new listings in 2021 that saw even more buyers meet the call. When there's more on offer, it makes sense that the number of buyers can increase. And, if you go by auctions only, the fear of missing out is certainly taking hold. For example, there were 1,529 homes scheduled for auction across the combined capital cities last weekend that saw an 86% clearance rate (average), as per CoreLogic. If you’re wondering, that’s relatively high, especially for summertime. Over the same week last year, which was prior to any pandemic news in Australia, 1,596 homes were taken to auction and 73% sold.

Are these buyers here to stay? Am I too late?

It’s hard to say who exactly is looking but a lot of the data suggests that younger people - first homebuyers - are still on the hunt before things get back to ‘normal’. 

  • My Housing Market says that national newly reported sales over 2021 so far are now 34% higher than recorded over the same period in 2020.
  • It’s also worth noting that 15,205 loans were approved for first home buyers over December 2020 (seasonally adjusted)  – an increase of 9% over the month, according to the Australian Bureau of Statistics. 
  • However, this won’t last forever. As analytics firm Archistar notes, prices will rise as government incentives and support packages end, which should see first homebuyer activity decline sharply in 2021.

Are you ready? Only fools rush in

Jumping in might seem like the only thing to do right now. But property expert and founder of Destiny Financial Solutions, Margaret Lomas says those less experienced with this type of frenzied market must be wary of the rush, especially when some purchases might ultimately be worth less than what paid for. 

"I think these are the same people who were ready to buy at the start of 2020, but when the pandemic hit uncertainty crept in and these buyers decided to wait," she says. "Now, after a year of uncertainty, people are tired of waiting. It’s like whenever there’s a dire prediction of a market crash - people wait a bit, and when it becomes obvious there’ll be no crash, they start to look again."

A home among the gumtrees

One of the themes of the current market is that young buyers are looking for houses, often beyond the city limits. "There are arguments for desirability of detached dwellings in 2021," says CoreLogic’s head of Australian research, Eliza Owen. "Anecdotally, houses have offered reprieve from density during a pandemic, and remote working arrangements have allowed people to seek relatively affordable houses in regional Australia."

To this end, CoreLogic’s number shows that house sales made up 58% of all Sydney property sales this January, just for example. 

Lomas adds that there’s "a significant amount of demand at around $1m mark in centers within a two hour commute to the big cities, with buyers imagining that a reduced requirement to attend the office will hold."

However, she isn’t sure how long or widespread this trend will last, especially as it pertains to people making dramatic lifestyle changes.

Autumn property season is around the corner

So, low interest rates on home loans, together with more people considering a lifestyle shift to the suburbs and regional areas, appear to have rejuvenated the property market broadly. The low cost of money means that lenders can offer low rates on a number of home loans, from UBank’s 3-year fixed 1.75% (2.22% p.a. comparison rate*) to Homestar’s variable 2.14% (2.19% p.a. comparison rate*). Ultra low rates sound pretty good, especially amid reduced competition in the marketplace with no overseas migration and little interstate movement as well. 

It’s also worth saying that even if auctions are busy and you hear stories about hundreds of thousands paid above the reserve price, this is just one segment of a much larger market. Not all properties go to auction and in fact, in some cities, auctions are less popular than private treaty sales. For example, in Brisbane and Adelaide clearance rates have been high, but on fewer than 100 sales in each city last weekend (week of February 7) - this compared to 668 in Melbourne (CoreLogic). In these types of slightly smaller capitals, there’s usually a chance to buy in a less competitive arena.

So what’s next? Start with home loan comparison

First, check your finances and create a rough budget. You’ll want to make sure you’re across leading fixed and variable options and understand the differences. There’s also the question of your initial deposit based on the price point in your local area.

A higher deposit should secure a lower interest rate but also means you need to borrow less from the bank and therefore pay less interest over the life of your loan.

We can help answer some of your initial questions right here. Why not start by comparing some of the competitive offers in our home loans hub.