Since bottoming out in May 2019, Australia’s housing market has rebounded positively in the last 3 months. CoreLogic’s national home value index shows Australian housing prices have increased by 1.7% since May.
Australia’s two largest cities, Sydney and Melbourne, recorded a third consecutive month on month gain with cumulative rises of 3.3% and 3.2% respectively. We are no where near getting back to the 2017 peak, with median prices still 10% off the high watermark.
So, what factors are driving the recovery?
Lower Interest Rates
With the economy showing limited signs of growth, the RBA has been dropping the official cash rate to a ridiculously low 0.75%. The lower cost of funding has allowed the banks to offer home loans with interest rates around the 3% mark. When consumers see the lower loan repayments, they are more willing to extend their borrowings and therefore are attending auctions with a bigger pool of funds.
Increased Borrowing Capacity
The Australian Prudential Regulation Authority (APRA) has reduced the ‘buffer-rate’ that banks are required to place on top of your actual rate. This buffer-rate determines what your maximum borrowing can be. The adjustment has resulted in borrowers being able to access 15-20% more credit than what they previously could.
Demand Outstripping Supply
Based on historical listings, the key markets of Melbourne and Sydney are experiencing 30-40% less listings than similar weekends in previous years. This means that more people are competing for a property. As prices grow, we are starting to see more supply hit the market, however this takes a while to play out.
Rapid population growth, particularly in Melbourne, continues to drive demand of quality family housing. Reduced stock on the market and a big buyer demand means there is only one way for prices to go… up! All it takes is two keen buyers at auction to drive a property’s price up.
Although the major cities of Melbourne and Sydney keep releasing new land parcels, the challenge is connecting these locations to quality jobs via efficient roads and transport networks. Daily life is busier than ever, so the ability to get to and from work in a satisfactory timeframe is critical to quality of life. The growing pains experienced by the major cities of Australia are making prices in suburbs with strong transport links to the CBD head north. People value their time more than ever, so paying the extra to be that bit more connected is easily justified over a lifetime of home ownership.
Once all the above factors are taking into consideration, it is only logical that house prices in Melbourne and Sydney continue to head north. NAB’s economic team have predicted house and unit values in Melbourne to lift by 7% throughout 2020. This is a sentiment I completely support.