Stimulus- Fix or Fugazi?

There has been a lot of talk about how crazy the market is in Perth at the moment. This spike in the market has happened so quickly and in such a short space of time. It sparked my interest so this week I started looking for reasons why?

Is it the government stimulus package?

Is it a change in consumer sentiment, or a kind of post-COVID 19 euphoria?

After talking to many people last week, it seems like new home construction and the building industry has gone crazy. In the first homebuyer market and lower price building companies' sales are double or even treble last month.This is a traditional house and land package in new estates.

I can't help but question why?

The facts are as follows:

1/The cost of building has increased - Project builders are hiring more people every day. As predicted they are panicking they will not be able to cope with the increased demand.

2/Land price has increased - This is fine in established areas but in new areas, the land price is artificially high as all the land is owned and controlled by one or two entities.

3/People are getting less for their established home due to the perceived value of building with the incentives.

The net result is that people selling a home to build are paying more. People buying for the first time are about the same.

In November I spent 4 weeks in display homes around Perth. I spoke to lots of people all excited about building. Many had purchased or built a home prior. The net result of 5 consecutive years of negative growth would mean they would need to pay off the negative equity of $50-$100,000 to upgrade and build.

Added to this in 2017 through to 2019 the building industry suffered at the hands of bank valuations in new estates. When the bank lends the money they conduct a valuation on the property to ensure they can get their money back, should they need to sell the property? This valuation was often $20-30,000 less than the cost of the house and the land.

With the cost of established housing decreasing it's likely valuations will be lower. The land price is now higher and the building cost is higher. The net result is that consumers will need to have substantially more savings than before the stimulus package. Once construction commences they will be able to apply for their grants and be compensated.

You can't help but the question.

If there were so many first home buyers out there wanting to build with $80,000 in savings prior to COVID. How come the industry failed to find them?

Are companies relying on the banks to finance the increasing equity gap?

In my quest to understand why I can't help but ask the question.

Has this fixed the problem or is it Fugazi?