According to new government data, property prices are rising again. However, static wages mean the growth may not be for long.
In the September quarter, national property prices had the largest increase since the end of 2016 as shown in the latest ABS data. Prices grew a weighted average of 2.4% across the eight capital cities, with faster gains seen in Sydney and Melbourne, at 3.6%.
The statistics back previous reports from CoreLogic, a property analytics firm, which showed the property market reached its bottom in June. The primary factor responsible for the fast price rebound was improved borrowing capacity.
Changes to mortgage serviceability laws under APRA in July lifted the borrowing capacity of potential purchasers by about 11% overnight. As a result, they were able to bid and raise prices at auctions.
And a further rate reduction in October allowed them to make more borrowing.
Change in Property Value
|Residential property prices||June quarter 2019 to September quarter 2019 %change||June quarter 2018 to September quarter 2018 %change|
|Weighted average of eight capital cities||2.4||-3.7|
*Source: Australian Bureau of Statistics
But how long will this boost last?
The market is expected to regain at least 11 to 13 percentage points of the price declines reported in Sydney and Melbourne during the 18-month slump. However, with wages rising at only 2.2% annually and unemployment tracking upwards, it is not easy to forecast whether prices would increase much past that.
Sydney’s market has declined 18% from peak, suggesting one cannot claw it all back simply on a buying perspective. And with income growth remaining quite sluggish, that implies what people are experiencing at the moment is a little sugar hit, because people have more money and can pay those higher prices.
The fast increase in past months could soon turn modest – not least since the number of properties for sale has been at low levels for years.
The number of properties on the market in November was the lowest year-on-year level since 2009. As supply rises, the monthly increases in house prices are expected to moderate in Sydney and Melbourne. In addition, low consumer sentiment and shrinking affordability will also dull growth.
Although some economists think the housing recovery shows a reflating of the debt-driven property bubble. They said that APRA and the RBA should initiate rules designed to slow down the housing market, since Australia is already seeing record-high levels of household debt.
Australians currently have $2.02 in debt for each dollar they earn, according to NAB. This means the country’s increasing property values would be of little help to the economy.
According to the RBA, housing price increases should back wealth effects and confidence, so the metrics on retail sales and sentiments should be intensely monitored for this.
The effect should be negligible at best, while the upside risk to credit growth is much more highly probable.