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Property prices in Sydney and Melbourne will stay high as constrained supply of new housing, high immigration and the probable end of the interest-rate rising cycle keeps buyers interested.
However, so far, the growth in house prices has been a mixed bag, with some suburbs and regions recording close to double-digit price growth, while others barely register any movement.
CoreLogic figures show house prices continue to rise with low supply likely to entrench the recovery.Credit: Peter Rae
CoreLogic figures show Greater Sydney dwelling prices have risen 7.4 per cent since the start of this year to August 31, while Greater Melbourne prices are 1.7 per cent higher.
It is the upper quartile price bracket in both cities – the top 25 per cent in terms of median prices – with buyers who are less sensitive to interest rates, that are mostly leading the price recovery, says Tim Lawless, the research director at CoreLogic.
“Historically, it’s typically the upper quartile that leads [recoveries] and lower price [property] tends to follow,” Lawless says.
Prices in Sydney’s northern beaches have risen 11.5 per cent since the start of the year, the most of any part of Greater Sydney. Meanwhile in Melbourne, the inner east, at 4.4 per cent, is the strongest performer.
The Central Coast is the poorest performer in Greater Sydney at 1.4 per cent and Melbourne’s west is the southern capital’s poorest performer at minus 1 per cent.
Lawless expects to see more financial stress across the mortgage belts, like Melbourne’s west, so it could take some time for lower-priced properties to catch up.
However, it is clear the housing price recovery is becoming entrenched, he says. And, a lack of housing supply is a big driver of elevated prices.
The latest Australian Bureau of Statistics figures on construction and building approvals show residential building approvals continued to fall in July, following a fall in June.
Monthly residential approval numbers are volatile given the lumpy nature of multi‑unit approvals – however, the general trend is weak in the context of the past decade.
“Housing shortages are set to continue, leading to both higher rents and home prices,” says Commonwealth bank economists Harry Ottley and Belinda Allan.
“Supply constraints, solvency and profitability issues in the construction industry and higher interest rates are all impacting on the construction industry currently, most acutely in the residential market,” they say.
CoreLogic’s Lawless adds that overseas migration is expected to hold at above-average levels over the coming years, underpinning housing demand against a backdrop of persistently low dwelling approvals.
With the Reserve Bank of Australia leaving the cash rate on hold, and prices rising, more people could be thinking now is the time to buy, says Shane Oliver, the chief economist at AMP.
However, history shows it usually takes lower interest rates to drive a sustained rise in property prices.
Most economists, including Oliver, are not expecting rates to start falling until next year, so it could be that the upswing in property prices is premature, Oliver says.
Though rent increases have eased somewhat, they are likely to stay elevated.
SQM Research figures show capital city asking rents rose 18.5 per cent during the 12 months to mid-August.
SQM figures for July show a rental vacancy rate of 1.6 per cent in Sydney and 1.3 per cent in Melbourne, well below the 3 per cent that is considered to be a healthy balance between landlords and renters.
The high number of short-term rentals is likely exacerbating the rental crisis.
A research paper by think tank Per Capita’s Centre for Equitable Housing, estimates landlords in popular tourist regions, including Sydney and Melbourne, can make more money from just 100 nights on Airbnb than they can from a full year’s median rent from a long-term residential tenancy.
Per Capita says short-term rentals could account for as much as 7.6 per cent of all rental dwellings nationally and much higher still in popular holiday spots such as Byron Bay on the north coast of NSW and Blairgowrie on Victoria’s Mornington Peninsula.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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