Tags :AustraliaBusinessConsumerfinancePROPERTYReal estate
The headline numbers are shocking: The median price of an Australian home is increasing at the fastest rate in 32 years, month-on-month.
There are now entire generations – this author included – who in their lifetimes have never seen the chance of purchasing the Aussie dream slip away as rapidly.
What is driving Sydney’s electric market, where potential bidders will have to wait for a 100-year rainstorm in order to win a semi-final?
CoreLogic’s Hedonic Home Value Index showed that Australia’s median home price rose by 2.8% to $614768 in March.
This price includes detached or unit homes.
The data does not reveal the reason. CoreLogic claims that the strength in the housing market is due a “disconnect” between supply and demand.
CoreLogic’s research chief Tim Lawless stated that buyers are so in demand that they outnumber sellers’ ability to put their property on the market.
Lawless stated that there is a ratio of new listings to sales of around 1.1. This means that for every listing on the market, 1.1 homes are sold.
“A rapid rate, such as absorption, keeps overall inventory low, and contributes to a feeling FOMO (fear of missing out) among customers.”
Corelogic reported that stock levels were 25.5 points lower than the five year average for the four week ending March.
Combining this with an auction clearing rate consistently above 80 per cent, you get the recipe that homes are being sold over reserve because of buyer demand.
That sense of FOMO – or the fear of missing out – realises itself in packed auctions as more and more potential buyers throw their hat into the ring due to historic low interest rates and the availability of finance.
Simply put, money does not cost much.
We seem to be borrowing less. New data from the Australian Bureau of Statistics (ABS) released today shows that the total value of new loan commitments for owner-occupier housing – that is people buying places where they actually want to live – was a staggering $21.7 billion in one month.
This is 55.2 percentage more than it was in February 2020, prior to the COVID pandemic.
In February 2003, the average amount borrowed by people for owner-occupier housing was $7Billion.
Now, the question is, can this growth continue as long as it does?
Corelogic predicts a slowing of growth.
Researchers wrote that they expect housing prices to continue increasing through 2021 and well into the next year. However, they believe it reasonable to assume that growth will slow.
“Previous periods similar in exuberance were stopped by factors such as rising interest rates, weaker economy conditions, or changes to credit availability.
To predict whether the market will decline, three key indicators are used: Will interest rates rise? Will the government continue to support first-time homebuyers? What about banks? Will they be able to limit how much money they lend?
Analysts summarized that “Overall, the housing market are continuing react a wide variety of positive factors including record low rates of interest and recent economic conditions that have consistently beaten forecasts.”
“Australians feel more confident and optimistic about making high-decisions related to the property market.
“The increased buyer demand has not been met with the same inventory.” This has created strong selling conditions for buyers and a sense that there is a lot of urgency. This has resulted in increased pressure on housing costs.
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