It is amusing reading all the current hysteria about Aussie housing, often from the same folks who were absolutely convinced home values would plummet 10 to 20 per cent (if not more) only nine months ago.
We were shouted down back then for predicting modest house price declines of 0 to 5 per cent over just six months (in practice, prices fell 2 per cent nationally across metro and non-metro markets), which we suggested would be followed by strong capital gains of 10 to 20 per cent.
I don’t know anyone who shared that view at the time.
As it turned out, house prices did start recovering six months after the COVID-19 crisis hit. And since their trough in September, dwelling values across the five largest capital cities have climbed 6.2 per cent. That puts them about 3 per cent above their pre-COVID-19 levels.
But if we examine the current cycle over a longer lens, the facts are sobering.
In the 3½ years since the peak of the last great housing boom, Sydney dwelling values have appreciated by a grand total of just 1.13 per cent. That’s not 1.13 per cent each year, but rather the sum of the capital gains since August 2017.
Put differently, the value of Sydney bricks and mortar has inflated by only 0.3 per cent annually over the past 3½ years. And that’s after accounting for the 6.6 per cent jump in Sydney dwelling values since their September COVID-19 nadir.
In Melbourne the picture is even more subdued. Home values today have not appreciated at all since their November 2017 peak. That is, there has been no net house price growth at all in Melbourne in 3½ years.
Nationally across the five big capital cities, dwelling values have appreciated by less than 0.5 per cent annually since 2017. Over the same period, Australian wages growth has been running four times higher at 2 per cent.
So while the increase in our incomes has been quadruple the rate of house price growth since 2017, the cost of borrowing has plumbed record lows.
In 2017, a 3-year home loan carried an annual interest rate of 4.5 per cent, according to the Reserve Bank of Australia. Today that is 40 per cent lower at 2.6 per cent.
Source: https://www.afr.com/policy/economy/why-the-house-price-boom-is-just-getting-started-20210319-p57c9c
