Property market surges in low interest rate lending environment

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Property soars as rates stay on hold

Sydney’s runaway property prices are unlikely to be derailed by interest rate rises any time soon, with low rates required to stimulate an otherwise sluggish economy and the Reserve Bank saying it sees inflation under control for the next two years.

As new figures show Sydney’s median dwelling price surge by almost $100,000 over the past year, the RBA held interest rates on hold at a historically low 2.5 per cent.

The low interest-rate environment has fuelled the rapid growth in the housing market, prompting the RBA to warn borrowers and banks against property speculation over the past few weeks.

But RBA governor Glenn Stevens avoided repeating the warning in his statement on Tuesday. He only noted that ”dwelling prices have increased significantly over the past year” in what economists said could be a sign the central bank would remain tolerant of the booming property market as other parts of the economy struggle to pick up the slack left by a decline in mining investment.

The stable outlook for interest rates means borrowers can look forward to near record-low mortgage lending levels for an extended period.

But with the number of prospective buyers at inspections and parties registering at auctions slowing, market watchers think the froth may already be coming out of the market.

Median dwelling prices in Sydney have soared to $630,000 last month from $545,000 in March 2013 – at least on paper, after property prices returned to record highs in March.

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Sydney prices grew by 4.4 per cent in the first three months of this year, just behind a 5.4 per cent lift in Melbourne and a 4.7 per cent rise in Hobart, figures released by RP Data and Rismark on Tuesday showed.

”Half of all Australia’s capital cities are now posting record-high dwelling values, with Sydney’s housing market showing the most substantial increase beyond its previous market high,” RP Data research director Tim Lawless said.

Rismark’s managing director Ben Skilbeck said March was a traditionally strong month for home prices, and that the increases were not surprising given the high

clearance rates and the lack of any major economic changes.

New figures from mortgage broker AFG, showed that almost 40 per cent of new home loans it processed last month were for investors – the highest level since the mortgage broker began keeping records seven years ago.

The surge in investors, including foreign buyers, has also priced first home buyers out of the property market. The proportion of first home buyers in Sydney taking out new loans have lifted off November’s lows, but remain depressed this year, Bureau of Statistics data showed.

Meanwhile, housing affordability has weakened, according to data from the Housing Industry Association last week, as the impact of low interest rates begins to fade.

While the price growth is dire news for first home buyers, those who paid premium prices for properties 12 months ago are breathing a sigh of relief.

”We are incredibly lucky we were able to find our house when we did,” said Kim Murphy, who stretched her budget to buy a cottage in Balmain for $1.15 million in March last year.

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The agent who sold her the freestanding three-bedroom home said it would be worth at least $150,000 more today.

”It would go for more than $1.3 million now,” said Monique Dower from Belle Property Balmain.

Ms Murphy said she and her husband remind each other once a week how fortunate they were to buy when they did.

According to the Domain Property Guide, Balmain house prices grew by 22.4 per cent in 2013. In neighbouring Birchgrove prices surged by more than 25 per cent with many high-end properties finding buyers.

Buyer’s agent Simon Cohen from CohenHandler said price growth was evident in almost all Sydney regions, but suburbs such as Balmain, Birchgrove, Glebe, St Ives, Willoughby and Bondi Beach had become especially competitive in the past 12 months. He put the growth down to low interest rates, offshore buyers, a lack of stock and high rents.

Glebe home owner Josephine Crimmins said she certainly could not afford to buy in her suburb now.

The design manager and her partner bought a three-bedroom terrace for $975,000 last May.

”I was just about to say that I couldn’t afford to buy in Sydney and just rent,” said Ms Crimmins.

Selling agent James Cahill from Belle Property said the property would be worth $1.2 million now.


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