Investors flood back into housing market

by Antony Field20 Sep 2021

A mortgage broker for more than 17 years with a wealth of experience in the property market, Boss Money’s Tom Uhlich looks at the buying trends over the last year and what’s driving the big return of investors.

The Australian property market was headed for tough times following the first COVID-19 lockdowns in 2020. By all reports it faced decimation.

Now we know that the health of the market is determined by two main groups, and they often move together – investors and first home buyers. Their exit or entry into the market drives market trends.

The big exit

Investors exited the market in droves in mid-2020, anticipating that it would plummet. They were positioning to strike when the market bottomed out, eagle-eyed for some never-to-be-seen-again property bargains. The market dipped in September 2020, but not for long.

First home buyers showed a fickler but slightly upward trend, with a few fits and starts.

But, far from the predicted doom and gloom, the property market has shown growth akin to the early noughties boom. What’s been driving it? Is it really first home buyers? No. It’s a third group that we very rarely hear about – owner-occupiers.

Owner-occupiers

Forced to work from home during the pandemic, owner-occupiers are cashed up due to lower living costs, and need space. A recipe for a new, larger home. And they are chasing it with everything they have. The graph below shows this perfectly.

What impact has this had on other buyer groups?

First home buyers – the drifters

First home buyers have drifted in and out of the market. Often they have been priced out, and the data backs this up. June 2021 was the fifth consecutive month that first home buyer loans fell.

However, the number of first home buyer loans was 47% higher than the previous June. So there were an adventurous few with the intestinal fortitude to brave this market and make money.

Investors – the big return

This is where a surprising and large disconnect becomes evident. Investors jumped back into the market in early 2021 with vigour. The most recent ABS data shows that investors are active, spurred on by spectacular capital growth and the potential for a rental recovery. In contrast to first home buyers, investors significantly increased their market share for the third consecutive month in June 2021. Investor activity has risen by 116%.

At Brisbane-based Boss Money, 68% of loans in the last three months have been to investors; 88% of these have fixed their loans. This tells us two things – one, investors are definitely back, and it’s a market-wide resurge; and two, investors anticipate the market will continue to be hot and will need to be cooled by a lift in interest rates. They are trying to strike while the iron is hot.

Commentary

That’s a stark difference between the two groups who normally work together. Have investors missed the boat? The dip in the market in September 2020 was their big opportunity. According to the ABS, first home buyers were in, and investors were out. They only flooded back in in early 2021.

The market is definitely hot, but the wildcard owner-occupiers are cooling off and seem to be exiting it. However, with investors active and pricing out first home buyers, are they actually buying at the top of the market? Are investors creating their own perfect storm?

Regulators are keeping an eye on an overheating market and are ready to pull their level-of-lending standard review. Potential caps on investors have been flagged for 2022. Until then, the expectation is that property prices will become unaffordable for the other two groups, particularly first home buyers.

Will house prices continue their rampage driven by investors, or will investors price everyone but themselves out of the market, causing it to crash? Only time will tell.

Contact Boss Money on 0476 111 000 or [email protected].

Tom Uhlich

Director and senior mortgage broker, Boss Money