Home Prices in Australia Record Biggest Monthly Increase in 17 Years | Business and economic news
Record mortgage rates, an improving economy, government incentives and limited housing supply are pushing up prices.
Australia’s real estate market is booming again, with the biggest monthly price hike in 17 years allaying fears of a Covid-induced slowdown.
Nationwide home values jumped 2.1% in February, the biggest increase since August 2003, according to data from CoreLogic Inc. released Monday. Capital city prices rose 2%, led by Sydney and Melbourne.
“The Australian real estate market is in the midst of a widespread boom,” said Tim Lawless, head of research at CoreLogic. The quick wins were “spurred by a combination of historically low mortgage rates, better economic conditions, government incentives and low levels of announced supply.”
As house prices skyrocket from Singapore to Canada and the United States, a return to good times in Australia threatens to inflate an already worrisome pile of household debt and make it harder for young people to put in a foot on the real estate ladder. Sydney is the third least affordable housing market in the world and Melbourne the sixth, according to a report last week.
The country’s property values have taken off again after the central bank cut interest rates to an all-time high and announced it would stay there for at least three years. People are also looking for larger homes with space to work from home, as rapid price growth has rekindled fear of missing out, causing buyers to flock to the market. According to the Commonwealth Bank of Australia, the country’s largest mortgage lender, house prices could rise 16% over the next two years.
“Auction closeout rates are at levels consistent with double-digit growth in house prices,” said Gareth Aird, head of Australian economics at the Commonwealth Bank. “History shows that people love to buy in a booming market.”
An auction for a dated two-bedroom cottage in Sydney’s inner suburb of Paddington on a recent Saturday drew more than 250 people. Auctions started at A $ 1.4 million ($ 1.1 million) – A $ 150,000 above the reserve and immediately screen out most potential buyers. It ultimately sold for just under A $ 1.7 million, A $ 450,000 above the reserve.
“We are seeing a significant increase in demand in all price points and in all suburbs,” said real estate agent Ben Collier, who handled the Paddington sale. Usually, “you see different markets moving at different speeds, which seems to be a little more consistent right now.”
In New Zealand, where house prices climbed 13% in January from a year earlier, the problem is so acute that the government will now ask the central bank to take into account the impact on housing prices. housing when setting interest rates, a change the bank opposed. The Reserve Bank of New Zealand is also reimposing lending restrictions on real estate investors in an attempt to cool the market.
What Bloomberg Economics Says:
“While rising house prices are likely to bolster aspects of household consumption through wealth and confidence effects, soaring asset prices and loan approvals also present a new financial stability challenge for the economy. RBA and APRA. A re-emergence of macroprudential political constraints is a risk in the coming months. “
– James McIntyre, economist.
Fears that Australia’s real estate market could be inundated with struggling sales as people were laid off by the pandemic have faded as the economy recovers faster than expected and people start paying off their mortgages again after being offered a six month loan vacation last year.
Instead, a shortage of supply is helping to fuel the price spike. The number of homes advertised for sale in the first three weeks of February is down 26% from the previous year, CoreLogic said.
“Home inventories are at historically low levels for this time of year and homebuyer demand is well above average,” Lawless said. “These conditions favor sellers. Buyers are likely facing a sense of FOMO, which limits their ability to negotiate. “
Another sign of the strength of the housing market, home loan approvals rose 10.5% in January, data from the Australian Bureau of Statistics said on Monday.
Home prices could rise about 20% this year and next, according to Westpac Banking Corp.
“The recovery is supported by historically low interest rates; the confident hope of borrowers that these rates will remain low for years to come; abundant credit supply; and an improving economic environment as vaccine rollout promises to end the pandemic, ”the bank’s economists said in a report last week.