Scarcity and spending: Why property is booming during COVID

In the midst of the COVID crisis, why has property been booming?

Since early 2020 we’ve been buried in gloom and doom news reports about the struggling economy. Lockdowns are seeing 60% of Aussies confined to their homes, and with international borders closed indefinitely population growth has ground to a halt.

Despite this negative backdrop, house prices continue to boom.

According to the latest CoreLogic figures, dwelling values have soared nationally by an average of 14% over the past seven months, with strong price rises occurring in 94% of regions across the country. In this climate, it doesn’t make sense.

To understand this we need to compare residential property to grass fire, where three things are required to burn – fuel, heat and oxygen. The fuel is the number of properties for sale, the heat is the level of demand and the oxygen is money supply.

This property inferno comes down to two words: scarcity and spend.

Scarcity has been created by limited properties for sale and growing demand.

For the six months or more after COVID hit, property prices held their ground as few homeowners were able to sell due to restrictions.

But below the surface, the heat was building from pent-up buyer demand who were quarantined, unable to spend their money, and seeking space and safety to escape the COVID threat.

And the oxygen that ignited the house fire was the billions of dollars of stimulus money, property incentive programs and the lowest interest rates on record. Money has never been more plentiful and never cheaper to borrow.

And property has always been a game of finance. Once lockdowns eased at the end of 2020 and frustrated buyers were able to purchase homes, a property firestorm erupted.

But it hasn’t stopped there.

The fire was further fanned by media coverage of the boom, bringing the fear of missing out into play. More Australians want a piece of the action, making the headlines predicting price rises self-fulfilling prophecies.

We’re not going to see an end to this any time soon.

Scarcity is not easily solved, but spend may be slowed when the government, the Reserve Bank and the banks cut off the oxygen supply by tightening lending policy or increasing interest rates, which won’t be happening in the near future at least.

In the meantime, sellers can continue to cash in on this rare opportunity while buyers may have to boost their budgets or bide their time.