Property prices in Sydney and Melbourne have increased over the month of September by 1.7 per cent.
This is the fourth consecutive month that house prices in the two cities have shown an increase, a total of 3.6 per cent since the downturn in May.
House prices indicate we are on the edge of a housing boom and if this trend continues, we may well find ourselves in one.
At present, roughly one-third of the price loss in Melbourne during the downturn has now been recovered and the growth continues to stun economists.
“It’s a very strong result. We haven’t seen growth rates like that in Sydney this high since early 2016 and not this high in Melbourne since 2015 – so it’s starting to put the month-to-month growth rates close to where they were when the markets were actually racing along during the peak of the boom during the previous growth phase,” CoreLogic’s head of research Tim Lawless said.
“To consider that only four months ago values were still falling, it does look like this is quite a rapid bounceback, much stronger than I would have expected if you’d asked me around the middle of the year.”
House Price in Other Capital Cities
Across other capitals, the results have been mixed with values decreasing by 0.8 per cent in Perth, 0.4 per cent in Hobart, and 0.2 per cent in Darwin. House prices in Canberra, on the other hand, increased by 1 per cent, flat out in Adelaide and increased by 0.1 percent in Brisbane.
Mr. Lawless said, “Although markets outside of Sydney and Melbourne aren’t showing the same recovery trend, most areas have either seen a reduction in the rate of decline or are seeing a modest trajectory of growth as low mortgage rates and a slight loosening in credit policy support buyer demand.”
And even if the RBA has cut the interest rate again, as expected it will on Tuesday, it will have a limited effect on the housing market, particularly in regions where prices are falling because lower rates have already been priced into the market, according to Mr. Lawless.
“My guess is that we will see a relatively small amount [of the rate cut] being passed on to mortgage rates. Last time we saw a rate cut back in July we saw an average 18 basis points being passed on and it could potentially be a bit less this time around,” he said.
“Lenders’ margins are under a lot of pressure and also lenders will need to continue incentivising depositers.”
High Property Price in Sydney and Melbourne Not Sustainable
Mr. Lawless also thinks the increase in property price in Sydney and Melbourne is not sustainable.
“We are seeing household debt at record levels and you’d have to expect as the housing market picks up we will see a commensurate rise in credit levels, so you would have to expect household debt to increase.”
Latest data from the Reserve Bank of Australia (RBA) shows Australians today have nearly twice as much debt as income. That ratio is rising above 190 per cent and has increased to 140.4 per cent in June quarter.
The housing credit has also recorded its lowest annual growth since 1977.
Meanwhile, though property price in Sydney and Melbourne are rising, price in Perth and Darwin are declining.
“Darwin is consistently down and that certainly looks like a very tough market when you look at all the economic and migration data. It is still very weak, so we are not expecting a turnaround in that marketplace” Mr Lawless said.
Subtle growth is also expected in Hobart despite price falling over the month. But property price in Sydney and Melbourne remains to be the strongest growth to date.
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