Sydney house prices jump $51k as nation marks fastest growth since '88

Home values across Australia have grown at their fastest monthly pace in 32 years, etching a staggering 2.8 per cent increase over March.

That takes the median home value from $598,884 to $614,768 - an increase of $15,884 since February.

In Sydney, values rose 3.7 per cent while homes in Hobart also grew 3.3 per cent amid an extraordinarily strong month.

For Sydney, that takes home values $32,095 higher to $928,028 in the course of one month.

And for standalone dwellings in the harbour city, that’s a $51,442 increase to $1,061,229.

“The last time Sydney housing values recorded a quarterly trend this strong was in June/July 2015,” CoreLogic research director Tim Lawless said.

“Following this brief surge, the pace of growth rapidly slowed as limits on investor lending kicked in to slow the market.”

Canberra values rose 2.8 per cent, while values in Melbourne and Brisbane both increased 2.4 per cent.

In Darwin, values increased 2.3 per cent and in Perth and Adelaide values rose 1.8 per cent and 1.5 per cent respectively.

Regional values also increased 2.5 per cent, although for the first time in a year this was smaller than the 2.8 per cent combined capital growth.

CoreLogic said the roaring numbers largely come down to a supply and demand disconnect.

“The ratio of sales to new listings is tracking at around 1.1, implying for every new listing added to the market, 1.1 homes are sold. Such a rapid rate of absorption is keeping overall inventory levels low and adding to a sense of FOMO amongst buyers,” Lawless said.

Auction clearance rates remained above 80 per cent over March, also highlighting the high levels of demand.

Gangbuster year ahead amid ‘palpable sense of urgency’

The latest figures come amid predictions of 17 per cent house price growth over the course of 2020. ANZ economists predict prices in Perth and Sydney will go up as much as 19 per cent, and Hobart prices will go up 18 per cent.

ANZ also predicts Brisbane and Melbourne values will increase 16 per cent, while Adelaide values will increase 13 per cent.

AMP Capital chief economist Shane Oliver also predicts another 15 per cent in what’s left of 2021, which after January’s 0.9 per cent growth and February’s 2.1 per cent growth, would take annual growth to a huge 20 per cent.

“It looks like [the growth] will be more frontloaded,” he said.

“It is ridiculously strong, and it comes off the back of pretty strong growth last month [February] as well.”

CoreLogic also predicts that while the rate of growth will continue to be strong well into next year, it will eventually slow. For now, however, there exists a “palpable sense of urgency” that will push the market higher for a fair while yet.

The three risks that could derail house price growth

While markets are rocketing higher, they’re not impervious, AMP’s Oliver said, noting that the end of the mining boom triggered recessionary conditions in Western Australia and the Northern Territory.

“Worst case scenario, we get plunged into recession or interest rates go up dramatically,” he said.

“If interest rates were to rise dramatically, that would cause debt servicing problems, people to default on their loans, recession potentially and then house price declines.”

However, he questions whether the Reserve Bank of Australia would allow this sort of decline to occur.

“At the moment, there doesn’t seem to be any interest rate hikes on the horizon. But that would be a risk.”

The more likely scenario, however, is that price growth gradually begins to slow throughout the second half of the year.

He said the Government is already winding back home builder incentives and the first home buyer deposit scheme, along with state stamp duty concessions which will take some of the wind out of the market.

A prolonged period before immigration numbers increase will also pose headwinds to future growth.

CoreLogic also flagged weaker economic conditions, rising interest rates and changes to credit availability as potential factors that would slow price growth.

Lending standards in the spotlight

“The prospect of tighter credit policies is also on the radar, which we know from previous periods of credit tightening will likely have an immediate dampening effect on housing activity,” CoreLogic said.

“The likelihood and timing of any change in credit policies is highly uncertain and largely dependent on a material lift in credit metrics such as debt to income ratios, loan to income ratios or high loan-to-value ratio lending.”

Oliver also listed tighter lending standards as one thing that could temper the market’s growth.

“This is what happened in 2015, 2017 and was reinforced in the Royal Commission. The one thing APRA and the RBA can do is increase the interest rate serviceability buffer. Most banks are using a buffer of around 2.5 per cent at present, but that could be raised to 3.5 per cent.”

As it stands, the Government and APRA is moving to lighten standards, however Oliver believes the planned easing may well be delayed as the market gathers pace.

“There is an argument to delay that,” he said.

“The argument that responsible lending standards needed to be relaxed because they made it onerous to get a loan - the reality is now that we have record levels of housing finance.

“It’s certainly not that hard to get a loan at present. If you ease the responsible lending obligations, in the midst of a full-blown property boom, it could lead to a further acceleration in housing loans and provide a green light for the banks to cut corners to keep their share of home loan lending up.”

However, APRA on Monday said it’s not yet planning to intervene in the housing market to either loosen or tighten standards.

Chairman Wayne Byres told a parliamentary committee that previous moves to curb activity had been targeting a surging number of investor and interest-only loans. This jump was being led by first home buyers.

“Housing is a big part of the balance sheet of the banking system and making sure that it is a stable part of the balance sheet of the banking system is important,” Byres told the House of Representatives Standing Committee on Economics.

“But I just want to be really clear that it is not our job, and has never been our job, to solve the problem of rising house prices.”

Housing affordability concerns reach boiling point

With the median home value in Sydney now $928,028 and nationally $614,768, social housing advocates are sounding the alarm.

Homelessness advocacy group Everybody’s Home is calling for more social and affordable housing to avoid a housing crisis.

“More social housing would better balance the housing market, creating more options for those who can’t participate in the boom. Higher house prices fuelled by cheap money will lead to increased costs in the rental market, worsening affordability,” national spokesperson Kate Colvin said.

“Higher house prices increase the pressure on landlords to increase rents, especially over the medium term. The best antidote to this is to create more social and affordable housing."

Everybody’s Home is warning spiralling prices will hurt both buyers and renters. As it stands, there are currently no affordable dwellings in the private market for households in the lowest income quintile, or those earning $220 or less a week.

“This is only going to get worse with the end of JobKeeper and the reduction of JobSeeker this week, plus the deadline for mortgage deferrals passing yesterday,” Colvin said.

“We’re now bracing for what could be the biggest economic shock since the pandemic itself and by promising to build more social and affordable housing, the Federal Government can secure our future and prevent an intergenerational housing crisis from worsening.”

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