Home Price News Asks More Questions!

Articles on Australian property are booming, as fears about future price growth, or even falls, rising delinquencies and slowing sales hit the socials. After all, people are after clicks, and yes home prices are click-bait - been to a BBQ recently? if so you know what I mean.

So today I wanted to go through the latest statistics and try to boil down the data to decode what is really going on. For context, we need to make some assumptions ahead. First, it is all but certain the RBA will lift the cash rates again on Tuesday. Already fixed rate mortgages for new loans have risen reflecting the market view of rates. Given the inflation bulge we are seeing at the moment, and with more to come thanks to the Gulf conflict. It’s a done deal in my view.

Second, we know that APRA has been bearing down on investor lending. If but gently. The latest data from the RBA which is to the end of March (only one rate hike really counted during this period) and the latest aggregates show Investment lending running at a massive 9.6% annual rate, the strongest serge since 6.6% in August 2022. Compare this with owner occupied lending which is running at a mere 6.2%compared with 9.2% at its peak in early 2022, and overall credit for housing running at 7.3% compared to 8% in 2022. Banks are throwing bigger loans to people, with the average loans size rising, again. From this it seems investors are still piling in, enjoying the tax perks surrounding negative gearing and capital gains. Perhaps this is pre-empting the expected changes in the upcoming May budget, but in terms of money supply growth, and inflation, this trend is concerning. In theory, it should mean more home price growth ahead, because more credit equals more ability to pay more, bidding prices up.

That said there are big differences between property types and their price trends. Last month, we saw that prices for homes eligible for Labor’s first home buyer scheme jumped 6.7 per cent in just six months since the expanded scheme was launched, fuelling concerns that new home owners are stretched to their limit already and are most vulnerable to further rate rises. First home buyers rushed to take advantage of the expanded scheme when it took effect on October 1 last year. The scheme allows an unlimited number of new borrowers to enter the market with loans worth 5 per cent of the property, backed by a federal government guarantee. More broadly prices are sliding.

So all up, it looks like the property market is slowing and prices easing, which I regard as a good thing, given the mismatch between income and price growth, which speaks to valuations up to 40% over long term trends.

But then as I discussed with Leith van Onselen this past week, we should expect more Government intervention to protect home prices, though the migration channel, more support for first home buyers and the building sector, etc etc. All of which will mean yet again the Government will save the property market, despite the long term costs. For the sake of the children, actually they should led property prices ease lower – see Canada, but don’t hold your breath.

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Caveat Emptor! Note: this is NOT financial or property advice!!