Australian house prices are rising at the fastest rate in 32 years, as the Sydney and Melbourne property markets fully recover from the short-lived COVID slowdown.

CoreLogic’s monthly home value index rose 2.8% in March, the strongest monthly growth since October 1988.

“It’s just remarkable to see this rate of increase across Australia,” said Eliza Owen, Australian research manager at CoreLogic.

Prices in Sydney saw the fastest rise, rising 3.7% in the month and 6.7% in the first quarter of the year – the strongest quarterly growth since mid-2015 .

“It was a time when the real estate market was growing very rapidly following an investor lending boom,” Ms. Owen said.

Prices in Sydney, Melbourne, Hobart, Canberra and Brisbane are all at record highs.

For the first time this year, growth in capital city markets overtook regional areas, which performed strongly as people moved outside of major cities during the pandemic.

“Housing values ​​in regional areas are 11.4% higher over the past year, demonstrating the earlier stronger growth trend,” said CoreLogic Research Director Tim Lawless.

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Homebuyer demand has been driven by historically low interest rates, which have increased people’s borrowing capacity and encouraged first-time homebuyers to enter the market.

But the number of listings remains low, with the housing stock announced during the month being more than 25% below the five-year average.

The high demand and the lack of supply mean that new listings are quickly picked up – for every new listing added, 1.1 homes are sold.

“Such a rapid absorption rate keeps overall inventory levels low and adds to a sense of FOMO [fear of missing out] among buyers, ”Lawless said.

Ms Owen said registrations were particularly low in regional areas, with fewer people moving away to capitals during the pandemic.

What would slow things down?

In recent months, attention has turned to steps regulators could take to remove some heat from the real estate market and slow the lending boom.

In March, Reserve Bank Governor Philip Lowe said that while low interest rates were certainly contributing to rising house prices, the central bank would not raise rates to explicitly target lower prices. housing.

“There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to focus heavily on recovering the economy, jobs and wages,” said Dr Lowe.

One of these tools would be the loan limitation, imposed by the banking regulator APRA, which several economists say could be introduced this year.

APRA President Wayne Byres said this week that while he was monitoring developments closely, there was “no cause for immediate alarm.”

“At this point I think it’s unlikely that we will see any regulatory intervention, it could be something that will happen in the longer term if lending conditions deteriorate,” said Eliza Owen of CoreLogic.

However, AMP Capital’s chief economist Shane Oliver believes regulators will step in soon.

Dr Oliver notes that there has been an increasing share of loans at high loan-to-value ratios and an increase in interest-only loans, albeit on a low basis.

“The first thing to do would be to increase the interest rate cushions, but limits on high loan-to-appraisal ratio loans and high debt-to-income ratio loans may also make sense.”

Other potential changes, Owen said, would dampen house prices, including rising mortgage rates by banks and an increase in listings.

Homes under construction with support from the government HomeBuilder program will also add to the supply in the months and years to come.

“The price of an asset cannot continue to rise at an accelerated rate if people cannot afford to buy them.”

Source: CoreLogic, March 2021