This Week In Real Estate: Price Rises Out-stripping Wages

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This Week In Real Estate House Prices Rise

Price Rises Out-stripping Wages

House prices are predicted to rise ten times faster than wages this year. Since the pandemic recession, Australia’s job market has significantly improved with the unemployment rate dropping 0.2% to 5.5% in April.

The figures released by ABS show wages rising 0.6% in the March Quarter, tracking at an annual growth rate of 1.5%. House prices, however, are growing more than eight times faster in that same period.

AMP Capital Chief Economist, Shane Oliver, says that house prices are up 8% this year, based on CoreLogic numbers. According to Oliver, “There’s another 2% coming in May alone. As this year settles down, we’re going to see house price growth at 15% or 20% in some cities”.

For years, the gap between average household income and house price growth has been growing. In 1990, the average cost of housing in Australia was about 2.5 times the average household disposable income. And now, according to the Reserve Bank, it costs five times more.

Buyers Eye Off-the-plan Projects

The sentiment towards off-the-plan properties is turning the corner. With government incentives enticing first-home buyers, the number of online searches has risen four-fold in some areas over the past three months.

Brisbane’s north, Moreton Bay, and Riverstone in Sydney’s north-west are the most popular off-the-plan properties, racking up 340% increases in the number of buyers.

Capio Group chief executive, Mark Bainey, says the demand for medium-density, off-the-plan developments outside CBDs has been experiencing a surge as buyers are paying record priuces for townhouses and bigger apartments.

The government concessions have helped to improve sentiment towards the sector. Nicola Powell, Domain’s senior research analyst, shares that first-home buyers in NSW and Victoria have received $10,000 for new homes and stamp duty discounts, while in Queensland, $15,000 is offered to first-home buyers purchasing new homes.

“I think the affordability of the outer suburbs has also been a lure for buyers to move to these new developing areas, particularly with the ability to work from home,” says Powell.

 

Regional Surge Tipped To Endure

With a shortage of property supply in the capital cities, a decade-long shift to regional centres is expected to begin with regional housing markets continuing to outpace the capital cities.. 

Property Council of Australia chief executive Ken Morrison believes that the lack of affordable urban supply will help ensure a population and capital shift to the regions will continue in most states over the next decade.

Morrison’s statement came as CoreLogic reports shared how regional markets have been outperforming value growth in the cities in the last twelve months. A 13% rise was recorded among the regional markets, while a 6.4% gain came from city values which was led by a 22% rise in the Richmond-Tweed area of NSW, which includes Byron Bay.

Morrison says the flight to the regions will continue. This, according to him, presents problems for locals priced out of their own markets, and strains sprouting on infrastructure as small towns grapple bigger populations.

“Infrastructure pressures are being felt right across Australia, but particularly in some of our faster growing regions,” he says.

Regional Rents Up Almost 10%

The combined regional dwelling values have increased at twice the rate (13%) than the capital cities’ growth (6.4%) in the past twelve months as regions continue to outpace capital city rents even more.

CoreLogic’s rental value index detected regional rents increasing almost three times as much as capital city markets over the year, with a 9.6% growth in the year to April—a significant comparison to the 3.3% in capital cities.

In an analysis of 25 regional areas, total available rent listings have halved over the past year and rent increases have ranged up to a 17.6% uplift across the Richmond-Tweed area.

A year ago, the average time a rental property spends on a market was 25 days. This has now been reduced to 17 days in April 2021. The lowest typical days on market is on the Gold Coast, where properties rent within two weeks.

Data suggests that tenants have been competing harder for regional accommodation both in terms of tenant budget and the pace of decision making. More severe consequences that affect the competition are housing stress and homelessness.

Buyers Shrug Off Rates Rise

Even with the Commonwealth Bank’s decision to lift the interest rates of select fixed-term home loans, property buyers remain unphased. Nationwide auction clearance rates hold above 77% as investors remain cheerful about the strong performance of the economy.

Priced and rents continue to strongly rise. A report from CoreLogic shared a preliminary clearance rate of 78.2% across 2,845 homes last weekend, and maintained a string of 15 weeks above 77%.

Australia’s largest bank, CBA, lifted the three-year and four-year fixed rates for owner-occupiers paying principal interest by five basis points to 2.19% and 2.24% respectively.

This follows the bank’s move to lift the four-year rate by 20 basis points from 1.99% in March. This has effectively rang the bell on cheap rates and also alerted borrowers to fix before they moved higher.

Banks are firm on their statement that their wholesale funding costs are rising. This is despite efforts by central banks around the world to lock in ultra-low rates.

Thinking of buying an investment property? Book a free consultation with a Reventon property advisor today!

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