- Posted by Sylvio Eckermann
- On September 21, 2016
:: The below article discusses some of the macro economic factors that are appearing in the Australian residential property market heading into 2016. It’s noted that this 5%+ rise may just be the inevitable seasonal sales swing.
However, given the OECD’s recent release on beating the ‘low growth trap’ is for governments to make the most of the historically low interest rates and loan capital for infrastructure expenses, what we may be seeing is the general public following suit :: MC ::
The first two weeks of spring have brought with them an ominous threat – that house property values are getting a second wind in the already blustery property market.
For much of this calendar year, we have been hearing that property price gains are moderating, but recent data on prices movement in the first two weeks of September for Sydney and Melbourne shows prices have taken off again.
That rate of growth quarter on quarter is spiking up 5.8 per cent and 5.9 per cent respectively, according to data from the organisation that monitors these movements, CoreLogic.
Already, housing affordability is stretched and thanks to an extended four years of extreme price rises, first home buyers now make up a record low 10 per cent of demand for mortgages. Only six years ago, that figure was around one-third.
Clearly for most, trying to get a foothold in the Melbourne and Sydney markets is increasingly elusive for first home buyers and people on lower incomes.
But the real question is whether this latest revival in property price growth is evidence of the souffle rising again or just a bit of a seasonal tick up.
CoreLogic’s Tim Lawless hedges his bets. Yes, the market always gets a bit livelier when sellers come out of winter hibernation, but there remain structural reasons for prevailing residential property heat.
There are a few things responsible for the rise in the rate of capital gains in Sydney and Melbourne – the most important remains the limited number of homes for sale relative to demand. Lawless says that in Sydney there is only about two months of supply, which he says is very low. So buyers don’t get much choice or time to look around as houses are snapped up quickly.
By way of contrast – the Perth market is running with about eight to nine months supply. And despite a regulator-imposed tightening of mortgage lending criteria over the past year, Lawless says there is still plenty of interest from investors.
Australian Bureau of Statistics figures released last week told the story of investor loans rising to their highest monthly level over a year.
The other factor that is clearly feeding into the rising property market is the Reserve Bank of Australia’s two interest rate cuts this year and persistent forecasts that they will fall again over the next six months.
However following the RBA’s last meeting in early September it was showing no signs of particular concern about property prices. AMP chief economist Shane Oliver, commented: “Perhaps a surprising aspect of the RBA’s statement is its relatively sanguine comments regarding the housing market. I would have thought the bounce back up in auction clearance rates in Sydney and Melbourne and renewed strength in housing finance would suggest that this year’s rate cuts have reinvigorated the already hot property markets in those cities.”
However if the tick up this month in property continues, the RBA might find itself in a vice – unable to ease rates again even if it wants to address future low inflation.
The degree of persistent interest from investors is not especially surprising in the context of returns from other forms of investment. Bonds and cash are yielding very poor returns and the share market (which has been strong this year) is looking increasingly volatile.
In the meantime the much-anticipated rush of new housing supply in the apartment market – which is meant to be the cooling off trigger – is mostly coming on stream in Melbourne’s inner city and to a lesser extent Sydney and not easing the wider shortage of houses in particular.
A report released last week from BIS Shrapnel suggests that the demand for and supply of dwellings in Sydney and Melbourne are now in balance and the NSW and Victorian markets should move into oversupply next year and price growth should taper off over the next five years.
But even if these forecasts are accurate this extended residential property boom will have significant social consequences. The home ownership dream may never become a reality for some sections of the market. Others will have to abandon their dreams of a Hills hoist for permanent apartment living.
Or, as Lawless has observed, some would-be first home owners that cannot afford a house, will themselves invest in apartments they don’t live in just to get a foot in the door of the property market.