Connect with us

Opinion

Why Australia’s property prices will continue to soar

Across the suburbs, they’re lining up for home inspections.

With COVID-19 restrictions, only a handful are allowed in at a time.

The queues, for units in particular, stretch down the stairwells and spill outside.

In some regional areas, particularly coastal locales, the situation has reached fever pitch.

Prices in some areas are up by more than a third in the space of a year as cashed-up buyers fleeing the cities head for the country with dreams of permanently working from home.

Regional prices rose 1.6 per cent in January, more than double that of the main capital cities.

Auction clearance rates are hurtling towards a perfect score in some cities.

Canberra recently clocked up clearances in excess of 90 per cent while Sydney has pushed way above 80 per cent; rates that indicate extremely tight conditions.

When Corelogic tallied the final numbers on Friday, the previous weekend’s national auction clearance rate hit a six-year high at 79.3 per cent.

The preliminary results from Saturday indicate an even stronger performance at more than 86 per cent.

A fortnight ago, Australian real estate prices lurched back into record territory — and there is no end in sight.

With interest rates locked in at a whisker above zero — and with Reserve Bank assurances they’ll stay put for the next four years — it’s little wonder buyers are scrambling for a piece of the action.

Add in the imminent removal of responsible lending laws and the stage is set for a sustained real estate boom.

Even accounting for the hyperbole usually employed by the industry, this note dropped into your diarist’s inbox over the weekend from a local agent summed it all up.

“In my 25 years of working in the industry, conditions have never been stronger.”

Nothing to see here

In ordinary circumstances, we’d be at the point where a rational Reserve Bank governor would be expressing concerns, perhaps even warning would-be home buyers that prices don’t always rise, and that caution is warranted in such a frenzied environment.

Behind the scenes, you’d expect contingency plans being formulated on how to deflate the real estate bubble without hurting the broader economy.

Not this time. Instead, our monetary mandarins are doing the opposite. They’re stepping aside, more than happy to let prices rip.

“There’s a lot of focus at the moment on the fact that housing prices are rising again, and the stock market has been strong,” RBA Governor Philip Lowe said recently.

“Well, the national house price index today is where it was four years ago … and the equity market, we’re back to where we were at the beginning of last year.”

He’s absolutely correct, of course.

Statistically, you could argue prices have barely moved in years.

The only problem with that line of logic is that it ignores what has taken place in the meantime.

Like, four years ago when the RBA, in a desperate bid to curb a runaway housing market, urged the banking regulator APRA to clamp down on interest-only loans, the preferred financing for investors.

It successfully muscled values lower and maintained the pressure.

Clearly, it was worried about a real estate bubble then.

Here we are again, and the most extraordinary thing is that we’ve just emerged from the deepest recession in almost a century with an uncomfortably high unemployment rate, oodles of spare capacity, inflation dragging along in the basement and wages growth at as slow a pace as it’s ever been.

Australia's property

Despite plenty of action around the market, property prices have remained consistent for the past few years.(ABC News: Sarah Motherwell)

How the RBA learned to love bubbles

Once upon a time, it was a central banker’s role to rain on the parade.

Or as William McChesney Martin, head of the US Federal Reserve in 1955, explained, to “order the removal of the punchbowl just as the party was really warming up.”

The idea was to look ahead, to take preventative action and keep things on an even keel.

So what’s changed?

For a start, there’s the fragile state of the global economy.

Then there are the concerns the Federal Government is about to rip away the budgetary support for the jobless and those left vulnerable from the impact of the pandemic on vital industries like tourism.

If the Government does reduce support, that will put a greater burden on the Reserve Bank to boost growth.

And so, with conventional weaponry almost exhausted and no real appetite to push interest rates into negative territory, our economic masters have latched on to a philosophy that’s been floating around for quite a while.

It’s called the Wealth Effect and it goes like this.

If housing prices inflate and the stock market keeps rising, people will feel wealthier and they’ll start to spend.

That, in turn, will boost earnings, investment, profits and lead to higher inflation and wages.

Rate cuts were supposed to do exactly that but didn’t.

In fact, all they’ve really done is boost asset prices. And now it’s hoped, soaring asset prices will do the job.

Of course, the biggest problem with soaring real estate prices and stock markets is that they drive a mighty wedge between rich and poor.

Those with assets end up sitting pretty. Those without end up being left further behind.

Stronger for longer

There’s an old saying among investors: markets can remain irrational for far longer than you can stay solvent.

So, as irrational as the recent booms have been, there’s every indication they will go on for far longer than is healthy.

Central banks, including our own Reserve Bank, have decided that instead of taking preventative action, from removing the punchbowl, they’ll let the party go on.

It is a dangerous game, and one that can backfire.

For the “Negative Wealth Effect” — the impact on spending when financial or property markets tank — can damage growth.

Ever since the financial crisis, central banks globally have been captured by their own actions.

They’ll do almost anything to ensure markets remain buoyant regardless of the longer-term consequences.

To be fair, the RBA reckons real estate prices will have to start moderating soon for two key reasons.

One is that for the past year, we’ve had no immigration which should have reduced demand for housing.

And the second is that a large number of newly constructed properties have yet to come on the market.

But if prices continue their stratospheric rise unchecked, it may be forced to look across The Ditch for inspiration.

The Reserve Bank of New Zealand has just raised the lending hurdles for investors after real estate surged more than 17 per cent in the past year.

So far, there’s no indication of anything like that here.

 

 

Article Source: www.abc.net.au

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Brisbane

Brisbane Housing Market Insights: February 2021

Brisbane Housing Market

Brisbane housing market insights for February reveals increased demand for houses has been underpinned by increasing consumer sentiment and a surge in interstate migration.

This resource, to be updated monthly, will collate and examine the economic levers pushing and pulling Brisbane’s housing market.

Combining market research, rolling indices and expert market opinion, this evolving hub will act as a pulse check for those wanting to take a closer look at the movements across the market.

So, what were the highlights across Brisbane’s property market throughout January 2021?

Brisbane median house and unit price values

TypeMonthQuarterAnnualMedian
All0.9%▼2.5%▲4.0%▲$527,826▶
Houses1.0%▼2.9%▲4.9%▲$583,902▲
Units0.4%▶1.0%▼-0.4%▲$393,177▲

^Source: Corelogic Hedonic Home Value Index – January

Brisbane housing market affordability

CityHousehold income to meet mortgage repayments September 2019Household income to meet mortgage repayments September 2020
Brisbane21.0%18.7%

^Source: Moody’s Investor Services – October

Brisbane prestige property ranking

CityGlobal ranking3-month change12-month change
Brisbane23rd-1.4%▼1.1%▲

^Source: Knight Frank Prestige Property Index – November

 

Article Source: theurbandeveloper.com

Continue Reading

Opinion

What’s different about this property boom?

property boom

If not for the backdrop of a global pandemic, you could be forgiven for feeling a sense of déjà vu as the property market shows all the signs of launching into yet another boom.

Auction clearance rates are at near-record highs, bankers are rubbing their hands together as lending takes off and many economists are predicting double-digit percentage gains in house prices over the next two years.

Latest quarterly figures from CoreLogic, when annualised, imply the national property market is growing at 11.2 per cent a year.

However, there are some big differences between the latest price upswing and previous booms in Australian bricks and mortar.

A glaring distinction is the market is overwhelmingly being driven by owner-occupier homebuyers, rather than investors, who turbo-charged the property surge of the past decade.

CoreLogic’s Tim Lawless says at the peak in 2015, property investors made up about 46 per cent of all new mortgage lending. Today, investors account for just 23 per cent.

Lawless says possible reasons could be banks’ tighter credit polices around interest-only lending, and softer conditions in the apartment market that many investors favour.

“Weaker rental demand, especially in the investment enclaves of Melbourne and Sydney’s inner-city unit markets, is likely a significant disincentive for investors,” Lawless says.

Peter King, chief executive of Westpac, has also described the investor market as “relatively quiet.”

“I wouldn’t say we’ve seen [investors] come back into the market yet, but conditions are looking like that’s a possibility, I think,” King said.

Another unusual feature of the latest property boom is that it is occurring amidst the slowest population growth since the First World War – something that you might expect to detract from housing demand.

Owner-occupier mortgages hit record levels

 

property boom

Source: ABS

What’s more, Mortgage Choice chief executive Susan Mitchell points out that the uncertainty of COVID-19 is likely to continue to hang over the market for months, as emergency financial assistance from banks and the federal government is withdrawn.

The mortgage broker’s half-year result also underlined another peculiarity of these times: while new loan growth is strong, there are also many customers repaying outstanding debt at a cracking pace.

So, if the property market is not being fuelled by investors or population growth, and coronavirus uncertainty lingers, what is driving prices higher?

All the evidence points to an owner-occupier bonanza. Australian Bureau of Statistics figures show new loan approvals to owner-occupiers surged 39 per cent in the year to December, while loan approvals for first-home buyers leapt by 61 per cent, boosted by government grants.

The surge is also a response to rock-bottom mortgage interest rates; when combined with a low supply of homes for sale, the result is strong price growth.

There is also a self-fulfilling dynamic at play in which people tend to jump into the market when they see prices going up, thereby drawing in more buyers. The phenomenon, known as “fear of missing out,” or FOMO, could further exacerbate price growth.

Experts say the unusual conditions suggest there is a divergent ongoing outlook for property – as opposed to yet another long-running boom.

Lawless is tipping national house price gains of 7-10 per cent but expects Sydney and Melbourne prices would be tempered to a degree by limits of affordability and their greater exposure to overseas immigration.

“I don’t think the market is fragile or is going to go backwards, but it’s hard to see housing values rising as quickly into next year,” Lawless says.

AMP Capital chief economist Shane Oliver also expects growth of 5-10 per cent, but says inner-city Sydney and Melbourne price hikes would likely be more constrained.

If FOMO catches fire and the boom starts to accelerate, the Reserve Bank of Australia (RBA) has made it clear that regulators would likely step in dampen the market. But for now, this looks unlikely.

RBA governor Philip Lowe this month said his main concern was “risky” lending from banks, not changes in house prices, but so far there had been few signs of a deterioration in lending standards.

 

 

Article Source: www.brisbanetimes.com.au

Continue Reading

Opinion

Westpac Forecasts 20pc House Price Gains

Westpac Forecasts

Westpac Forecasts 20 per cent gains in the housing market over the next two years.

In a report released Monday, the banking institution’s chief economist Bill Evans said he was expecting dwelling prices to rise 10 per cent nationally in 2021, and said the pace would continue into 2022, off the back of strong economic growth.

“The upturn is being supported by record low interest rates; the confident expectation among borrowers that these rates will remain low for years to come; ample credit supply; and an improving economic backdrop, as the roll-out of vaccines promises to bring the pandemic to an end and drives a sustained lift in confidence,” Evans said.

“The bottom line is that Australia’s housing upturn now has strong momentum that looks to be lifting further and will remain well supported by monetary conditions and an improving economic backdrop.”

Dwelling approvals surged 22 per cent in the final quarter of 2020, and new lending for dwellings lifted by 16 per cent in the December quarter, which Evans says demonstrates a robust and confident housing market.

“Most tellingly, buyer demand has run well ahead of ‘on market’ supply, with sales outstripping new listings by 34 per cent over the last six months and ‘stock on market’ down to just 2.5 months of sales—[where] the long run average is 3.8,” he said.

“A lift in new listings will no doubt be forthcoming but for now this is clearly a seller’s market.”

House prices forecast: Westpac

Westpac Forecasts

^ (as % change). Source: Westpac bulletin

Unsurprisingly it was the smaller capital cities and regional towns that were most likely to capitalise on these forecast dwelling price increases.

There was still concerns about lingering areas of weakness, specifically the Sydney and Melbourne high rise markets, but according to the Westpac Housing Pulse report they look to be a minor drag on the broader market surge.

Evans said it was the regions that had been largely unaffected by virus disruptions and benefitted from related shifts in internal migration flows that would see the biggest boost in property prices.

Evans said they were also predicting good news for the labour market.

“Australia is expected to see growth well above trend this year and next. The unemployment rate is forecast to decline steadily to 6 per cent by end of 2021, and 5.3 per cent by end of 2022.

“We now expect the upswing to generate stronger, double-digit, price growth near term while our expectation, back in September last year, remains that a policy response can be expected later in 2022 which will settle markets into 2023.”

 

Article Source: theurbandeveloper.com

Continue Reading

Positive Cashflow Property

duplex designs, dual occupancy homes

Property Investment Advice

gold coast property management

Trending