Would house prices be better in a no-COVID world?

Despite the market being highly conducive to strong price growth in the beginning of 2020, the uncertainty associated with COVID-19 saw most markets fall by the end of March.

Over the June 2020 quarter, most capital cities, except Canberra, saw house prices decline by 0.3 per cent to 2.8 per cent. But as government policy responses and other support schemes, along with the significant decline in mortgage interest rates, revived confidence in the property market, house prices easily recovered – with dramatic value increases becoming widespread over the past six to nine months.

According to KPMG Economics’ new report, Australia’s Residential Market post COVID-19, the rises in residential property prices have actually been greater than what would have occurred in a “counterfactual no-COVID scenario”. “It appears the short-term positive factors of lower mortgage interest rates have swamped the longer-term negative factors of lower population and price disequilibrium during this recent price spike,” the report noted.

Without the pandemic – and thus without the introduction of support schemes such as HomeBuilder and the fall of cash rate down to 0.1 per cent – KPMG estimated that house prices would have risen from 0 to 13 per cent across capital cities by 2023 (from 2019). Now, post-COVID, capital city house prices are expected to rise by as much as 35 per cent. Even Darwin, the only capital city where house prices were modelled to fall in a no-COVID scenario, would instead see prices rise between 5 to 10 per cent.

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*Bianca Dabu - Smart Property Investment July 2021