What's in store for the Australian property market in 2021?

author-avatar By on December 17, 2020
What's in store for the Australian property market in 2021?

Despite all the pandemic-induced drama, 2020 turned out to be a pretty stable year for property prices in Australia. So how might the property market fare in 2021?

High hopes for Australia’s property market in early 2020 quickly turned into fear as the country fell into the grips of the pandemic.

Although it wasn’t the market Armageddon some economists predicted, house prices in some areas took a short tumble, while vacancy rates rose sharply in Sydney and Melbourne.

Millions of borrowers took a holiday on their mortgage repayments, while others withdrew from their superannuation to make ends meet.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

The Federal Government came to the rescue with big spending stimulus in the form of JobKeeper and JobSeeker, but also looked to maintain the pipeline of housing construction work through the introduction of the HomeBuilder grant.

In the end, Australia largely managed to escape the clutches of the pandemic (compared to other developed nations), and a combination of government stimulus, three Reserve Bank interest rate cuts and leniency from lenders appeared to help keep the nation’s property market from collapsing.

All of this in response to a little thing called COVID-19, perhaps you’ve heard of it?

No one could have expected 2020 to turn out the way it did, so barring another global crisis, 2021 should be a bit easier to predict.

House prices to rebound sharply

In May, Australia’s biggest bank, Commonwealth Bank (CBA), forecast house prices could fall as much as 32% due to the pandemic.

It was the most pessimistic forecast by a long way and didn’t come anywhere close to fruition.

Between April and September, house prices fell by 2.1% and bounced back to rise in October and November, according to CoreLogic.

CoreLogic’s Head of Research, Tim Lawless, said housing values were likely to surpass pre-COVID levels by as early as January or February next year.

ANZ has forecast capital city house prices will be up 9% next year, and Buyer's agent platform BuyersBuyers.com.au predicts Sydney and Melbourne prices could spike more than 10%.

SQM Research forecast Perth to be the standout performer, with price increases above 10%, in a best-case scenario, with Sydney not far behind.

Simon Pressley, Head of Research at buyers agency Propertyology, said he expected the market to bounce back strongly next year.

“In the 2021 calendar year, Propertyology believes that 5 out of 8 capital cities have every possibility of double-digit price growth,” Mr Pressley told Savings.com.au.

“We think that detached houses in Canberra, Hobart and Perth will be the best-performed capital markets in 2021.”

“From a property market perspective, the Q2 2020 COVID-19 lifestyle restrictions were akin to pressing the pause button on real estate for a few months.

“It merely delayed what Propertyology believes will be the biggest property boom this country has seen for more than 15-years.”

PRD Real Estate chief economist, Dr Diaswati Mardiasmo, said a boom was likely to occur early in the year.

“Overall I can see that we are going to have a strong, almost unprecedented property market growth in the first quarter 2021, and depending on how we deal with uncertainties in the second quarter, there is a potential for a tapering in the second half of 2021,” Dr Mardiasmo told Savings.com.au.

“Brisbane I can see growing even more – especially with the excitement around Queens Wharf projects and it being part of South East Queensland, where median property prices are almost half of Sydney.

“Sydney will go back to its strong market, and many of its metropolitan and satellite areas will grow even further – considering many can now work from home and there is an increase in property price cap with the second round of HomeBuilder.

“Melbourne will potentially see the highest growth of all, as it bounces back from the second lockdown, and with property price caps lifted in the second round of HomeBuilder.”

But Domain Senior Research Analyst, Dr Nicola Powell, said although the capital cities were likely to see price increases, some areas of Sydney and Melbourne may see price falls.

“I am expecting our smaller cities will see stronger rates of growth such as Adelaide and Canberra, and we will see Perth on its road to recovery as well next year,” Dr Powell told Savings.com.au.

“If we're going to see weakness it will be largely in the apartment or unit market, and I think areas that have greater vulnerability for price falls are in our major CBD market, in Sydney and Melbourne for example.”

JobKeeper, increased JobSeeker, and HomeBuilder come to an end

JobKeeper and the boosted JobSeeker payment have provided welcome support for millions of Australians.

Data from the Reserve Bank (RBA) revealed unemployment numbers would have doubled without JobKeeper, and the increase to JobSeeker (formerly known as Newstart) was widely seen as long overdue.

Meanwhile, evidence suggests the HomeBuilder scheme has been successful in keeping the construction industry afloat, with construction loans spiking by 10% in October.

However, the Federal Government has made it clear that much of this support is only temporary. As such, fiscal support such as JobKeeper and the JobSeeker supplement are set to expire in March, unless the Government decides to grant another extension. The Homebuilder grants are also set to stop in March.

Each of these schemes have already been extended, some twice, so there’s a chance they may be extended further, but that remains to be seen. Treasury estimates 1.75 million people will still be on JobKeeper in the March 2021 quarter.

Dr Powell said the end of JobKeeper could have a negative impact on the housing market.

“I think what we have seen for COVID is the younger demographic and lower-income households have felt the economic impacts of the aftermath of the pandemic more so than any other kind of demographic and it's the younger demographic lower-income households that are much more likely to be renting and receiving JobKeeper,” she said.

“So I'm expecting actually the disruption to the rental market being far greater than the sales market.”

Dr Mardiasmo said all of the schemes coming to an end around the same time could cause issues for borrowers and renters alike.

“You have several financial support systems ending in the first quarter of next year – for example, JobKeeper, HomeBuilder, moratoriums on mortgages (any of the extended ones).

“This may rock the boat slightly in terms of creating uncertainty as there may be many who are yet to transition to employment by that time, and this has a flow-on effect to meeting rental or mortgage requirements.”

No more mortgage holidays

Lenders came to the table as lockdowns were introduced and offered mortgage deferrals to those experiencing financial hardship.

At the peak, 900,000 loans were deferred, with data from November revealing this number has fallen by 70%.

Lenders have said they will continue to support borrowers where possible but in ways outside of deferrals.

Dr Powell said lenders had assessed that around 15% of deferred loans were at risk of not experiencing a resumption in repayments, which could send prices downwards.

“We're not seeing an increase in distressed selling but I think once we see the mortgage holidays end early next year, we could start to see people who are struggling to make their mortgage repayments actually end up selling their homes,” she said.

“If they sell them urgently and it happens at a high level of distress in certain pockets, that will cause a greater risk to prices.

“I think what I've seen from the evidence is there could be price falls and disruptions to loan repayments in the CBD areas because these are the areas that have seen kind of the biggest disruption due to COVID.”

In 2020, we saw the first-ever Australian home loan interest rate starting with a '1'. And then we saw many, many more.

This is largely due to the RBA cutting the cash rate three times this year, to a record low 0.10%.

By the RBA’s own admission, the cash rate will remain unchanged for at least three years, as the recovery from COVID is set to be long and protracted.

Coupled with the government’s proposal to ease responsible lending laws, and you have a year where you may very easily be able to get a historically cheap home loan.

“Proposed easing of lending standards will obviously make it easier to take out a mortgage, and allowing access to credit simpler and quicker could help to promote market activity,” Dr Powell said.

“I think buyers will be encouraged to borrow if we do see an easing of lending standards and they may be encouraged to actually leverage more.

Regional areas to continue to grow in popularity

Regional areas have seen a spike in popularity through COVID, largely due to the shift to working-from-home.

Regionals outperformed the capitals in November, with regional home values up 1.4% compared to 0.7% in the cities. 

Mr Pressley said large parts of regional Australia would be the outright star performers in 2021.

“With the exception of Hobart, the best markets over the last 5-years were a dozen or so regional locations and we expect more of the same over the next 5-years,” Mr Pressley said.

“Melbourne and, to a lesser extent Sydney, continue to be Australia’s two most vulnerable property markets.

“Their economies have the biggest exposure to overseas tourists and students, plus COVID has caused the biggest percentage of job loss in these two congested cities.”

Photo by Johnny Bhalla on Unsplash


The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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