House prices bounces back strongly

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SYDNEY recorded its highest monthly house price growth in 31 years as the sensational rebound in values gathers pace, and the major markets are likely hit all-time-high values in the new year.

CoreLogic’s latest Home Value Index shows prices in Sydney jumped by 2.7% in November and in Melbourne by 2.2%. Prices rose in every other capital city except Darwin. Hobart was up 2.3% and Canberra 1.6%, while Brisbane and Adelaide grew by 0.8% and 0.5%.

Perth, which has gone from the country’s most expensive market to the cheapest over 13 years, lifted 0.4% for its first month on month rise since a pause in the downtrend early in 2018. Dwelling values in the Western Australian capital have been trending lower since mid-2014, down a cumulative 21.3%.

“The synergy of a 75 basis points rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal election outcome, are central to this recovery,” CoreLogic’s Tim Lawless said.

“Additionally, we’re seeing advertised stock levels persistently low, creating a sense of urgency in the market as buyer demand picks up. There’s also the prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values.”

National growth of 1.7% over November marked the fifth consecutive monthly increase, coupled with the largest monthly gain in the national index since September 2003. The index is back into positive annual growth territory for the first time since April 2018.

The turnaround in the residential market is likely to worsen Australian housing affordability issues, according to Moody’s Investors Service, after mortgage interest rate cuts and house price declines had taken down the share of household income mortgage borrowers need to meet repayments on new loans.

Since finding its trough in June, the national dwelling value index has lifted by 4.7%. Values remain 4.1% below their 2017 peak, and are now tracking roughly at the same level as recorded in January 2017.

CoreLogic’s combined capital cities index is 4.6% higher over the past three months with values recovering by 5.7% since bottoming out in June. The combined regionals index is up smaller 1.1% over the past three months and values have recovered only 1.1% since finding the trough in August.

AMP Capital chief economist, Shane Oliver said the high level of auction clearance rates points to a continuing rebound in home prices in Sydney and Melbourne into early 2020.

“Based on past relationships the current level of clearances points to annual house price growth of 10% to 15% over the next six to 12 months.

“Our base case remains that after an initial bounce house price gains will be more constrained than what we saw through the 2012-17 property price boom. Compared to past recovery cycles household debt to income ratios are much higher, bank lending standards are much tighter, there are still more units to hit the Sydney and Melbourne property markets and unemployment is likely to drift up as overall economic growth remains weak.

Property price gains slow to a more moderate pace of say around 5% per annum once the initial rebound runs its course, but this looks unlikely to occur until around April to June next year. AMP Capital expects property prices will have surpassed their 2017 highs in Melbourne and Sydney by this time, at around February and May respectively.

Average capital city property prices are expected to rise by around 10% across the entirety of 2020.

“However, the rapid rebound in Sydney and Melbourne property prices since mid-year poses the risk that we will see much stronger gains for longer as price gains feed on themselves attracting more buyers back into the market who fear that they will miss out,” Oliver said.

“The extent of the rebound in the last few months also highlights ongoing issues around the undersupply of housing relative to strong population driven demand.”

The rebound has prompted an ANZ forecast for Sydney and Melbourne to return to double-digit growth in values by the middle of 2020, while NAB has upgraded its prices outlook for the remainder of this year and next.

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