• OUTSTANDING FEBRUARY WEEKLY CLEARANCE RATES OF 87%, 88%, 82% AND 88%
  • SPIKE IN MORTGAGE LENDING BODES WELL FOR HOUSING MARKET THROUGHOUT 2021
  • RBA RECONFIRMS RECORD LOW INTEREST RATES UNTIL 2024 “AT THE EARLIEST”
  • RBA INCREASINGLY ACTIVE IN BOND MARKET TO COUNTER CURRENT “INFLATION SCARE”

 (CoreLogic and REIA figures. Chart Source: RBA 2021)

The Magic $1,000,000 mark is fast approaching for Sydney’s median dwelling values. 

Fueled by a massive spike in housing loan commitments and a coincidental drop in total property listings, Sydney dwelling prices surged a nation-leading +2.5% in February to reach $895,933, just 1.1% shy of their 2017 peaks. This was the strongest monthly result since 2003. Sydney is now home to 39 of Australia’s 42 suburbs whose median values exceed $3,000,000. For houses, median time on market dropped to only 29 days, with vendor discounting a nation-low -2.05%. 

Sydney prices have a long way to go to reach a market-clearing equilibrium. Sellers are holding out for higher prices, and buyers are fueling auction clearance rates well above 80% since the New Year.

In other welcome news, Sydney unit prices finally appear to have bottomed, registering their first monthly price increases since April 2020. Buyers shut out of the red-hot auction market for A-grade homes are choosing instead to get their hands on whatever properties are available, despite unit rents still lagging owing to current overseas travel and immigration restrictions. With these restrictions set to ease throughout the year, current unit buyers may well see outsized returns relative to homes for the remainder of 2021. 

 

The Reserve Bank acknowledges the potential for a housing bubble

Given the enormous backlog of unsuccessful bidders crowding weekend auctions nationwide, there is increasing media talk of record low mortgage rates potentially fueling a property bubble. Veterans of past bubbles appreciate the harm such bubbles can inflict on all market participants once the rate of price appreciation returns to its longer-term average. 

Reserve Bank Governor Philip Lowe is clearly one such veteran. In his 2 March 2021 RBA Monetary Policy Decision Statement, Governor Lowe states that:

Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently. Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates.

The problem for Governor Lowe is that the standards for borrowers are just fine. It’s the supply of quality homes that has not kept up with demand and is fueling the price increases. Dwelling values are surging but relative to household disposable income, they have actually been falling. Household debt has also fallen relative to disposable income due to current record low interest rates.

Help is on the way. Private residential building approvals have also surged as first home buyers and owner-occupiers take up various government incentives and rebates for new homes and house-and-land packages.

 

The Bottom Line 

In times past, the RBA would often directly target the property market when prices began to accelerate like they did in Sydney in February. The thinking then was that higher housing and asset prices would damage the economy through CPI and PPI increases. 

However, with the current backdrop of stubbornly high unemployment and stagnant real wage growth, the 2021 RBA Board has taken a different tack. They are prepared to tolerate asset inflation in the property market until “actual inflation is sustainably within the 2 to 3 per cent target range.”

In other words, the RBA is giving a green light for higher property prices until 2024 “at the earliest” if building activity stimulates the economy, increases real wages and lowers unemployment. That’s welcome news for all property market professionals. 

Continued success in this banner year for Sydney real estate!