New government figures have confirmed that property prices are soaring again – but stagnant wages mean the boom could be short-lived.
National property prices in the September quarter saw the biggest gains since the end of 2016, according to the latest ABS statistics.
Prices lifted a weighted average of 2.4 per cent across the eight capital cities, with Sydney and Melbourne posting even faster gains, of 3.6 per cent.
The data supports earlier reports from property analytics firm CoreLogic, which found the property market found its bottom in June.
Since then, national property prices have increased 4.7 per cent.
Angie Zigomanis, director of research and strategy at Charter Keck Cramer, said improved borrowing capacity was the main factor behind the rapid price rebound.
APRA’s changes to mortgage serviceability rules in July boosted the borrowing capacity of prospective buyers by roughly 11 per cent overnight, Mr Zigomanis said.
This allowed them to bid up prices at auctions.
And another rate cut in October enabled them to borrow even more.
The question now is, how long can this boom go on for?
Mr Zigomanis believes the market will claw back at least 11 to 13 percentage points of the price falls seen in Sydney and Melbourne during the 18-month downturn.
But with wages growing at just 2.2 per cent a year and unemployment trending upwards, he said it was difficult to predict whether prices would rise much further beyond that.
“The Sydney market has fallen 18 per cent from peak, so that suggests you’re not going to claw it all back purely on a buying capacity perspective,” Mr Zigomanis told The New Daily.
“And with income growth pretty weak still, that suggests what we’re seeing right now is a bit of a sugar hit, coming from the fact that people have more money in their pockets and can actually pay those higher prices.”
EY chief economist Jo Masters also believes the rapid price rises seen in recent months could soon moderate – not least because the number of properties on the market is at multi-year lows.
According to CoreLogic, the number of properties available for sale in November was at its lowest year-on-year level since 2009.
“So as we see a pick up in supply, you would expect the monthly increases in house prices to moderate in Sydney and Melbourne,” she said, adding weak consumer sentiment and decreasing affordability would also dampen growth.
“It’s hard to imagine prices continuing at this pace because some of the increase in demand has been from first-home buyers, where we saw some improvement in affordability,” she said.
“So as you reverse that, you would expect first-home buyer demand to become a bit softer, and for those affordability issues to rear their heads again.”
Other economists, though, believe the housing recovery demonstrates a reflating of the debt-fuelled property bubble.
They argue that APRA and the RBA should introduce policies aimed at slowing down the housing market, given Australia already holds record-high levels of household debt.
According to NAB, Australians now owe $2.02 in debt for every dollar they earn in income.
IFM Investors chief economist Alex Joiner said this meant Australia’s rapidly rising property prices would do little for the economy.
“The RBA asserts dwelling price rises should support wealth effects and confidence, [so] metrics on retail sales and sentiment should be keenly watched for this,” Dr Joiner wrote on Twitter last month.
“I suspect the impact will be minimal at best, while the upside risk to credit growth is much more likely.”