A review of the latest release of official real estate data confirms that 3 of the 8 capital cities and various parts of regional Australia are back into property boom territory. Momentum in other markets will soon see numerous other locations added to the boom category.
Throughout the RBA’s rate raising cycle, Propertyology has consistently stated that underlying fundamentals across large parts of Australia are conducive of a boom in real estate values.
The numbers in Core Logic’s median value changes for the 3-months of March, April and May equate to an annualised rate of growth of 18 percent in Sydney, 10 percent in Perth, 7 percent in Brisbane and 6 percent in Melbourne.
That is significant capital growth in any period, made even more impressive considering that interest rates increased in 2 of those 3 aforementioned months.
The summer holiday period provided an emotional circuit breaker for people to rediscover that one link in the chain which went missing during H2 2022. Confidence.
Pressure creates diamonds
An increasing number of Australians have realised that the sky is not falling. Indeed, their own situation is much better than the one painted in the headlines.
People are getting on with their life, as they should.
Since late January, real estate agents across Australia have enjoyed seeing more buyers at Open Homes and increasing instances of multiple offers on the very low volumes of stock available. Auction results have also been very strong.
As shown in this graphic, real estate in most locations across Australia is now selling quicker than 3-years ago.
Buyer confidence plus low housing supply is a combination akin to the pressure that transforms carbon into diamonds.
Asset values in Canberra, Hobart, Adelaide and Darwin all produced growth during the month of May, a month which delivered the 11th RBA cash rate increase since April 2022.
It is folly for anyone to think the real estate ‘formula’ is as simple as rising interest rates produce falling property prices, and vice versa.
Deja vu
We extracted the below story from newspaper archives of 33-years ago, when home loan rates were circa 15.5 percent.
History is littered with situations when the opinions of countless pessimistic folk were very different to the combined sum of key fundamentals.
The primal connection between one’s home, human sacrifice and housing supply is an intangible that will always be the biggest foundational pillar for property markets.
Related article: Here’s where house values tripled
Where’s the ‘cliff’ now?
All of that ad nauseum nonsense regarding a so-called ‘mortgage cliff’ is now, finally, not as prevalent.
Let’s not forget that 6 out of every 10 Australian households don’t have a mortgage. Either they have already repaid their home loan, or they rent.
According to Australian banks, including our Central Bank, the biggest portion of borrowers who originally opted for a fixed interest rate are already off it.
Home loan arrears remain at a ridiculously low 1 percent.
With or without a mortgage, we all need a roof over our head. There are not enough rooves in Australia.
These fundamentals don’t lie
The current landscape suggests that double-digit rates of capital growth in many parts of Australia are on the cards for Q2-Q3-Q4 of 2023.
It is hard to find fault in this collection of fundamentals:
- Australian homeowners are enjoying record high equity in real estate assets. Many townships across Australia experienced circa 50 percent growth over the 3-years ending 2022, providing multiple options to pivot and to invest in one’s future.
- Well before the RBA began their rate raising cycle, a very high portion of borrowers were voluntarily paying significantly more than their bank’s minimum required loan payment.
- Banks are still reporting that a high portion of borrowers have significant savings squirrelled away in mortgage offset and redraw accounts.
- Job stability is the best in most people’s working lives (the lowest unemployment rate in 50-years) and there is significant upward pressure on wages.
- Australia still has the lowest ever level of rental supply in our nation’s history. The current collection of policies is doing nothing to ease the intense pressure.
- Similarly, large parts of Australia have near record low volumes of properties listed for sale.
- The pipeline for new housing stock is significantly restricted by the high cost of materials, tight labour supply, red tape and fragile developer cash flows, and
- The latest data shows new population patterns emerging, including overseas migrants on route to an all-time record high (adding more demand to housing).
History leaves footprints
The big ‘unknown’ at the moment is inflation. It is impossible to predict when it might return to a level that the RBA is more comfortable with.
But it will happen at some stage, as will a reduction in interest rates.
Instead of becoming a prisoner of this small moment in time, the intelligent investor will take action now which puts themselves in position to benefit most when interests do fall.
Follow the footprints of time, not the current-day herd.
What will be will be for inflation and interest rates. Never in the history of the human race has there been a moment in time without challenges and imperfections. Never.
Just as the clothing label worn by an athlete does not define the athlete’s performance, the label of ‘inflation’ or ‘recession’ does not define property market performance. We know that Australian history has multiple eras wherein high inflation, rising interest rates and/or a national recession was prevalent, yet property markets remained strong.
Supply supply supply
The knee-jerk reactors and conclusion-jumpers of the world would be wise to remember that housing is by no means a discretionary item. Aside from water, it is the human race’s most important commodity.
We don’t have enough of it (for sale or for rent).
The ridiculously low volume of housing supply that Propertyology has been banging on about for several years means that, even though the total volume of buyers is nothing special, significant competition exists for the small pool of housing stock for sale.
Simply saying ‘…just build more homes…’ is useless jibberish, not a solution.
Before one extra home is built, someone must first stump up the money. A meaningful mass of more housing supply will not happen without an environment that supports a critical mass of buyers. Fact.
Whether ‘for rent’ or ‘for sale’, the current collection of policies is not at all conducive to boosting housing supply.
Pressure on real estate values will remain until that significantly improves.
And, with an expectation that people will continue to realise that the sky is not falling, more seagulls will come out and compete for the small amount of chips. Rates of capital growth will increase with it.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
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