Here’s an Easter present for you: You’ve become much wealthier lately.
Provided you own a home.
For everyone else, the gap between the haves and have-nots is growing rapidly as the property market turns “red hot” after three years in the doldrums.
Housing prices in Sydney surged a massive 3.7 per cent in March, leading the fastest rise in national home values in a generation, according to CoreLogic data published on Thursday.
Some economists are forecasting capital city house prices to rise between 10 and 20 per cent over the next two years as interest rates remain at historic lows.
But the regulators responsible for reining in the housing market are still unfazed, playing down growing speculation about additional rules to curb risk lending over the past week.
To understand why, we need to look at who is buying all these properties, and the amount of money banks are lending to buyers in general and investors in particular.
Here are three reasons why the current boom won’t last.
1. The housing boom is a ‘catch-up’ story
The first thing to recognise, housing economist Andrew Wilson told The New Daily, is while house prices are rising at a rapid clip, in many suburbs they are still below their recent peaks.
In fact, the national median has risen by just 3.8 per cent since September 2017, which actually amounts to a small decline when you take into account inflation.
And although the value of new housing loans to investors increased by $6.9 billion in February, according to ABS data published on Thursday, it remained well below the $10 billion high it reached five years ago.
“We aren’t seeing the investor outbreak that we saw in 2015,” Dr Wilson told The New Daily.
“This is a catch-up market. It will run out of steam … March quarter will be the peak.”
2. Owner-occupiers are driving the boom – not investors
Another reason why the boom is unlikely to last is that it’s being led by owner-occupiers rather than investors.
Dr Wilson said this means at some point housing will become so expensive that only a small group of Australians will be able to afford it.
Not least because house prices are rising much faster than wages and workers are unlikely to get a decent pay rise until unemployment falls considerably.
“There’s no prospect of lower interest rates, so [price] growth will gradually decline as housing prices bring down affordability,” Dr Wilson said.
In fact, lending growth started to slow in February. Although the value of new loans to owner-occupiers was up 55.2 per cent year on year, it fell 1.8 per cent over the month.
And lending to first-home buyers also fell, dropping 4 per cent in February as the federal government’s HomeBuilder and first-home buyer grant programs started fading away.
Financial regulators are monitoring these levels more closely than price growth, because household debt can pose a risk to financial stability.
And because we’re not seeing the kind of investor-led speculative lending that prompted the introduction of speed limits in 2015, APRA chair Wayne Byres says he is unfazed for the time being.
“There does not seem cause for immediate alarm,” he said in a speech earlier this week.
3. There are still barriers to investors
One thing Mr Byres will be watching closely is how many investors rush into the market in the hunt for higher yields.
New loan commitments to investors grew by 4.5 per cent in February, mostly offsetting the fall in total lending, in a sign that non-occupier demand is picking up.
But Dr Wilson doesn’t expect Australia to return to the levels of property speculation last seen in 2015, because several curbs on risky lending remain in place.
“We still have significant roadblocks for investors obtaining finance,” Dr Wilson said.
“There’s sort of a culture within bank lending that’s risk averse towards investor lending.”
That means prices should rise much slower over the next six months.
“First-home buyers are looking at a 10 per cent premium for trying to get into the market in 12 months,” Dr Wilson said.