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The first quarter of 2021 has been a bumper one for housing as Australia’s largest city recorded a 3.6% surge in home prices over the month, according to CoreLogic figures. This rapid growth in housing values is the fastest since the 3.8% surge the harbour city experienced in August 1988. Back then, Sydney’s median home cost just $141,000 – jumping to $170,850 the following year and continuing to increase until the slump of 1991. Sydney’s median price at the end of February this year stood at a whopping $1.06 million.
Sydney is not the only city that has seen impressive increases – CoreLogic figures are expected to show Brisbane, Melbourne, Perth and Adelaide each achieving 2.4%, 2.2%, 1.7% and 1.4% growth respectively. The five cities aggregated would show an annualized growth of 33% – again, the fastest growth since 1988.
“If you extrapolate that, it gets into nose bleed territory,” CoreLogic international chief Lisa Claes told AFR’s banking conference. She did point out, however, that NZ and US home price growth has outstripped that experienced in Australia over the last year.
Experts are already concerned that the huge surge in house prices may not be driven by supply and demand fundamentals.
“Prices are surging despite zero immigration, suggesting that at some point we’ll end up with a chronic oversupply because construction is kept at higher levels,” Shane Oliver, AMP head of investment strategy and chief economist told The Australian. “Without immigrants coming in, the underlying demand will be running below supply which will lead to rebalancing.”
And in more record-breaking news, there may be more issues in the pipeline. This February’s house building approval figures are in – and have set a new record, beating the record set in December. ABS figures show that new house approvals jumped to nearly 14,000 – an increase of 15%. That figure is a whopping 58% bigger than the same period a year ago.
The figure may, however, be the last gasp of approvals fueled by the government’s HomeBuilder program, which ends today. The grant initially offered $25,000 to eligible new home builders last June. The figure dropped to $15,000 at the end of 2020. ABS figures show that private home approvals jumped nearly 70% over the period.
Despite the surge in private home approvals, apartment approvals have been subdued, down nearly 30% y-o-y – perhaps a reflection of the current move away from CBD living. But this could be set to shift.
“Since there is so much heat in the free-standing housing market, we are starting to see some evidence of people considering the inner-city a little more,” SQM Research principal Louis Christopher told the AFR’s Banking Summit. “We could start to see price rises there, despite the surplus we are seeing with our rental numbers.”