• Greg Morgan

Property Market Back to Record Growth

The Australian property market continues to forge ahead at record pace, as prices rise and the house-to-income ratio climbs into unsustainable territory. While property booms have long been part of the Australian story, the timing of the current bump is concerning due to COVID-19. Instead of falling during the global pandemic like many experts predicted, the property market seems to be running away. While this is good news for many existing home owners, first-home buyers are increasingly being locked out of the market.

According to data from the Australian Bureau of Statistics (ABS), the mean price of a dwelling in Australia is now $835,700. While this national figure is much lower than lofty property values in Sydney or Byron Bay, it's a huge jump from the $678,500 figure recorded just one year ago. The house-to-income ratio, which is a fairly good measurement of house price sustainability, has risen from 2.5 in the early 90s to over 6 in 2021.

Excessive borrowing is helping to fuel further growth, with the market in an upwards spiral and many people struggling to hold on. According to separate figures from Core Logic, Australian house prices are rising at their fastest rate in more than 17 years. Sydney recorded 18.2% growth over the year, with Melbourne recording 10.4% growth, Brisbane recording 15.9%, and Darwin seeing the biggest jump with a massive 23.4% for the year.

These huge numbers have created a complex investment environment, with existing homeowners seeing tremendous growth on paper along with many potential risks. The situation for younger Australians is much more simple, however, and a lot less optimistic. Potential first-home owners are struggling to save for a deposit in current conditions, with Australians under 40 now less likely to own a home than any time since 1947. According to Mr Lawless from Core Logic, "Housing is moving out of reach for many members of the community."

Based on ABS results, residential property prices rose 6.7% in the latest quarter, which is the strongest growth since records began in 2003. House prices jumped $52,600 in the June quarter alone, and the Reserve Bank has said they can't do anything about it. According to RBA governor Philip Lowe, it's not the role of monetary policy to target house prices, which need to be addressed by long-term structural factors linked with supply and demand.

While some markets are predicting a 0.8% rate rise for 2022, Mr Lowe does not understand why this assumption is being made: "Our judgement is that this condition for a lift in the cash rate will not be met before 2024... While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built."

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