2021 - What a year!

Would it surprise you to know that the most Australian homes purchased in the one year was in 2021?

It stands to reason in one sense as the COVID year of 2020 saw the brakes put on residential property transactions fairly abruptly and decisively. When it became clear that the real estate market wasn’t going to come crashing down, confidence surged back into the market, resulting in these statistics. Add to that that roughly one in five Australian homes were purchased in the past five years.

The perfect combination of factors made 2021 a popular time for people to buy and sell property. It has one of the highest annual growth rates in home values on record (24.5%), mortgage rates were at their lowest (with average new owner-occupied rates bottoming out at 2.4%), consumer sentiment had moved through a decade high, and the HomeBuilder incentive was partly extended into the first four months of the year, encouraging the purchase of new homes.

At a national level, home values have increased 7.6% since the end of 2021, which is not as strong as the returns for those that bought a year later, when market values saw a short, sharp dip in response to rising interest rates, before rebounding to new record highs.

With what has occurred in real estate since then, it could appear that Australians who purchased in 2021 were incentivised into the market at a higher-risk time. Average loan sizes reported by the ABS escalated quickly (up almost 18% over the year), at a time when borrowers were being told it would be another few years before interest rates shifted upwards from their lowest ever level.

Buying close to the market peak means there may be higher risk of low capital returns or value loss in the face of higher debt costs. Although home values have continued to rise since December 2021, it has only been a very modest 1.8% increase across Sydney.

Despite all that, reports of mortgage stress have remained relatively low and over 90% of borrowers had at least a 10% deposit for new loans secured that year, providing a buffer against falling home values.

Studying the data, it seems that 2024 may not see a strong capital growth return in the short term, but mortgage serviceability is likely to become more manageable over time, particularly if interest rates decline and wages grow. However, for those who have found it hard to save amid the recent history of high cost of living pressures, buying their first home or upsizing may be out of reach.