We Fools are normally in the business of covering the share markets, the S&P/ASX 200 Index (ASX: XJO) and everything in between. We don't normally stray into in that other market of utmost importance to the Aussie consciousness – property.
But the two are at least interconnected and rely on one another for support. For example, if the property market was to crash tomorrow, how do you think the share prices of the ASX banks (which make up almost a fifth of the ASX 200) would react?
Rhetorical questions aside, it's property we will be discussing today. A lot has been said, and speculated, about the impact of coronavirus on the housing market, both in 2020 and the flow-on effects over the next few years. Since we are in uncharted territory with the pandemic situation, predictions are varied, to say the least.
But reporting in the Australian Financial Review (AFR) today is unequivocal on the future of the Australian property market: 'they will never let a housing crash happen'.
The AFR reports that property research company SQM Research is predicting that the government sees housing as 'too big to fail' from a political standpoint, and thus will take steps to insulate the property market from experiencing a major correction or collapse.
How will property go in 2021?
The SQM research posits 4 different scenarios for housing in 2021. All are based on variations of future government fiscal stimulus (particularly possible extensions of the JobKeeper program), the success of a coronavirus vaccine candidate, and the level of monetary policy support from the Reserve Bank of Australia (RBA).
Importantly, the modelling predicts either flat or positive growth under all 4 scenarios.
The 'base case' is actually the most accretive for the property market. It assumes that the RBA will leave interest rates unchanged at 0.1% and expand its quantitative easing (QE) programs. It also assumes a progressive rollout of a COVID-19 vaccine, a possible third wave of infections, and a JobKeeper extension to 30 September 2021. Under this scenario, the model forecasts average capital city property prices to rise between 5-9% in 2021.
However, even the 'worst case' model, which sees no change to existing RBA policy, a phased-out-as-planned JobKeeper, a third wave of infections, and a progressive rollout of a vaccine, the modelling suggests capital city price growth of between 0-4%.
Both of the other scenarios, which involve permutations of the above outcomes (including modelling for no COVID-19 vaccines in 2021) suggest average capital city growth of 2-6%.
I guess property investors don't have a lot to lose in 2021, going by these numbers. And that's probably good news for ASX shares too!
