Housing Price Boost Expected to Continue

The latest figures show that property prices are likely to continue growing but may eventually settle with a high enough rise in interest rates. According to a recent report from the Commonwealth Bank Australia (CBA) Global Market Research, housing prices in Australia have increased by 10.7% since March 2013.

While dwelling prices are rising in every state, the rate of growth varies significantly across each of the capital cities. Prices for new dwellings in Sydney have climbed 15.6%, followed closely by Melbourne at 11.6%. Hobart sits on the lower end with an increase of 0.9%, while a 4.5% increase is estimated for regional areas.

According to CBA Chief Economist Michael Blythe, dwelling levels are having an impact on affordability and that many have argued in favor of increasing interest rates. It is estimated that a 20% increase in mortgage rates (7% p.a) would likely slow the current surge in housing prices.

The rise in housing demand has been attributed largely to rapid population growth. The report demonstrates an increase in birth rates since 2005, alongside an increase of migration. According to Mr. Blythe, skilled professionals who move to Australia are typically wealthy, adding to property demand.

These trends have lead to concerns about overvalued housing. As part of a mid-year survey released by Fairfax, 25 leading economists were asked about whether the rise in housing prices were likely to pose problems. While many respondents agreed that Australia’s housing prices are high, the majority rejected the idea that there is a ‘housing bubble.’

Australia and New Zealand Bank (ANZ) Chief Economist Saul Eslake said that restrictions on housing supply have played a major role in rising prices over the past decade.  

However, Eslake said that these increases were not “unsustainably” high, and were unlikely to result in increased household debt.    

Michael Blythe said that a housing bubble would require accelerated credit growth and an easing of lending standards. Mr. Blythe noted that while it is important to monitor these trends, there are few signs that lending standards would ease.



This article was originally published on PropertyJobs.com.au