As property prices continue to boom, macroprudential measures are needed to stop the uncontrollable increase in house prices.

Cameron Kusher is the REA Group’s economic analyst. He stated that macroprudential policies are being increasingly expected to target higher-risk lending. This is especially true due to the strength in the housing market.

A recent thought piece by him stated that “national real estate prices have increased quickly over the 12 month period to August 2021, with data showing a 19.7% rise over this time.”

This is consistent with CoreLogic’s CoreLogic report which showed a 19.9% increase of house prices each year, with the median price at $656,694.

Kusher claimed that gains over the past five years are not comparable to those of boom years.

Although prices have increased rapidly since the outbreak of the pandemic, they have been growing much slower in recent years. The past five years have seen a 33.2% increase in prices, with 19.7% growth over the past 12 months. He stated.

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Mr Kusher believes the COVID-induced property price rise doesn’t call for “lending speed limits” given the unique factors at play.

Other countries around the globe have also reported an increase in house values, including Canada and the USA.

He said that the current rise in property prices in Australia and the rest of the world is due to the record-low mortgage rates caused by the pandemic, as well as the subsequent economic recessions.

The difficulties with the Australian vaccination rollout were also responsible for the rapid increase in prices.

Kusher believes that Australians have been shifting their spending patterns in light of the recent closure of international borders as well as other state lockdowns, with more money moving into the housing market.

He said that it is undesirable for prices to rise rapidly as only property owners benefit from such an increase. It does not necessarily mean regulators shouldn’t intervene and stop price increases at this stage, especially if there is no sign of deteriorating lending standards.

“While calls for macroprudential intervention will continue to grow as prices continue to rise, the RBA and APRA should resist these calls for the time being, unless of course there is meaningful deterioration in lending standards.”

Slowly cooling the house price heat

Annual house price increases are strong but monthly house price movements paint an entirely different picture.

CoreLogic’s latest report found that prices are continuing to rise, but it also indicated that monthly price growth was slowing down.

The monthly upwards movement for Sydney’s property prices has decreased from 3.7% to 2% in March to 2% by July.

CoreLogic research director Tim Lawless said that Sydney had experienced one the largest property price gains in Australia in the past seven months.

He said that the key contributing factor to the slowdown was likely to be the increasing affordability of the City, as well as the negative impact on consumer sentiment, which is a result of the City’s extended locking period.

The key trend to watch is the opening of borders

Kusher claimed that the constant restrictions on international travel, and the rolling closures of border crossings have had an impact on house prices.

“With COVID-19 immunizations being rolled-out, and the hope of lockdowns ending as vaccine rates increase with a view toward reopening international borders next year,” he said.

Tightening lending standards may be more harmful than beneficial in order to limit price gains. This could lead to a slowdown in the domestic economy.

“Hopefully we’re only months away from lockdowns being largely a thing of the past and international borders reopening, at which time it would be prudent to reassess conditions in the property market,” Mr Kusher said.

“Other nations have already reached a stage in which domestic and foreign travel are returning.”

“It will be intriguing to see what impact this has on demand for property and growth in property prices in those countries and could offer a glimpse into the future for Australia once lockdowns and travel restrictions are no more.”