More confirmation Monday that housing is booming with house prices starting 2021 on the up and housing finance ending 2020 very much on the up.
And it will be news that won’t change thinking at the Reserve Bank for today’s first policy meeting of 2021, but the boom will be noted and it on the to watch more closely list.
The RBA would be very happy that Australians, with the help of record low interest rates and helpful government funding, are confident enough to chase existing house prices higher and commission new homes to be built.
But being conservative central bankers, there will be a warning bell or two ringing to watch to see how the boom progresses this quarter.
The CoreLogic house price data for January showed a rise of 0.7% nationally last month and prices are now up 1.7% (but are coming from the big falls mid year in 2020).
The central bank will digest the Australian Bureau of Statistics data yesterday that housing finance commitments (ex-refinancing) surged another 8.6% in December to a new record high and jumped 31.2% over 2020.
The rise was broad-based with owner occupiers ex first home buyers up 6.3%, first home buyers up 14.1% to a new record 25% of all housing loans and investor loans up 8.2%.
The AMP’s Chief Economist, Shane Oliver says the surge in housing finance “like the rebound in home prices is being driven by a combination of record low mortgage rates, home buyer incentives and economic recovery.”
“It’s consistent with further gains in house prices ahead as these loans are drawn down and listing remain relatively low.”
And Dr Oliver says there’s no reason to worry at the moment abut the boom.
“Right now the rate of growth in total housing related debt is modest – with RBA credit data for housing debt showing a rise of 0.4% in December and 3.5% year on year – because existing borrowers are focussed on rapidly paying down debt and the housing finance commitment data leads the flow of new credit with a lag,” he wrote on MOnday
“But the RBA is likely to be starting to get a bit more concerned given the pace of the rebound in lending commitments and house prices.
“At the very least it would make sense for home borrower incentives to be wound back in the months ahead and not extended and if housing credit growth accelerates significantly we are likely to see a renewed tightening in lending standards by year end or early next year, given that it will likely remain premature for the RBA to start raising interest rates or ending bond buying entirely given continuing uncertainty and spare capacity regarding the wider economy,“ Dr Oliver warned.
Meanwhile the CoreLogic report for January showed Sydney dwelling prices rose by 0.4% and are up 2% on a year ago. Melbourne prices also rose 0.4% but are down -2.1% on a year ago reflecting a -5.6% fall around mid-year through the various lockdowns.
Prices in other cities were all up strongly led by Darwin with a 2.3% gain in January and 11.4% through the year, followed by Perth and Hobart both up 1.6%, Canberra up 1.2% and Brisbane and Adelaide both up 0.9%.
Regional dwelling prices jumped 1.6% in January and 7.9% in 2020.
Dr Oliver pointed out that “capital city house prices rose 0.9% in January and 2.4% over the last 12 months whereas unit prices rose just 0.1% in the month and fell -0.1% on a year ago, likely reflecting an ongoing shift in lifestyle preferences towards houses.
He says weak rental conditions made worse by the slump in immigration continue to weigh on the unit market. Over the last 12 months unit rents fell 7.8% in Melbourne and 5.6% in Sydney, although there were some signs of stabilisation in January.
“At the current rate of increase average capital city dwelling prices will surpass their September 2017 record high by March, although this masks a wide divergence with: record highs already in Brisbane, Adelaide, Hobart and Canberra and in average regional home prices; Perth and Darwin remaining well down on their 2014 highs; and Sydney and Melbourne prices having been range bound since 2017,” Dr Oliver forecast yesterday.
