- CoreLogic's national home value index recorded a 2.8% rise last month
- Sydney and Melbourne led the nation, outpacing smaller cities' previous growth
- Buyer demand outpacing new advertised supply = rising prices
- One major concern with this trend is housing affordability constraints
Government incentives and easy monetary policy intensified the heat in the housing market once again last month, with CoreLogic‘s national home value index recording a 2.8% rise – the fastest rate of appreciation since October 1988 when values were up 3.2% over the month.
As reported on The Property Tribune a month ago, Sydney led the nation, with home values surging 3.7% over the month and 6.7% higher over the first quarter of this year – the highest quarterly growth since June and July of 2015.
CoreLogic’s data indicates that Sydney and Melbourne – Australia’s two largest housing markets – have now staged a full recovery from earlier downturns, and are outpacing many smaller cities that were leading the charge in growth previously.
Supply and demand
This trend comes down to supply and demand analysis.
On the supply side, total advertised listings remained extremely low throughout March with the count of national total listing numbers showing advertised stock levels were 25.5% below the five-year average.
Going back to Sydney for example, home sales for the city are estimated to be 15% higher than a year ago, while listing numbers are 15% lower.
Applying ECON101 principles – increasing buyer demand outweighing new advertised supply = rising prices.
The ratio of sales to new listings for the entire country is around 1.1. This means that for every new house that comes onto the market, 1.1 homes are sold. More houses sold than coming onto the market is keeping overall inventory levels low, further adding a sense of FOMO amongst buyers.
Tight market conditions are also seen in auction clearance rates, which have consistently been above 80% in March. This trend has continued so far in April, including the busiest auction week since Easter 2018.
House affordability concerns
One major concern with surging house prices is housing affordability constraints. Rising house prices may be good news for investors and those who currently own a home, but for those currently trying to break into the market.
While it is expected that housing values will continue to rise throughout the year, CoreLogic predicts the pace of growth will slow.
This will be due to lower fiscal support for homeowners and potential first home buyers, filtering into lower demand.
And with the RBA committed to lower rates to bring forward the economic recovery, tighter credit policies are a real possibility to put an immediate dampening on the housing market.
The Australian Prudential Regulation Authority (APRA) has previously said that this change will be largely dependent on the lift in credit metrics such as debt to income ratios, loan to income ratios, or high LVR lending. However, they claim lending standards remain relatively healthy – healthy enough not to warrant any credit intervention for now.