Housing up in late 2020
At the 5-capital city level housing prices increased +0.9 per cent in December 2020, according to CoreLogic's preliminary data, with the detailed release due out this week.
All capitals recorded solid increases, with prices up by about +0.7 per cent in Sydney.
In Brisbane prices jumped +1.2 per cent higher in December, ensuring that prices will ascend to record highs in the new year, and Adelaide is following a very similar trajectory (click to expand chart):
With credit card and personal debts being rapidly extinguished this year, and interest rates continuing to decline, household interest serviceability is now 29 per cent lower than its average over the past 40 years.
What the housing bears have gotten wrong this year has been failing to recognise the long held relationship between housing prices and interest rates, with the most important nonlinearity being that housing prices are much more responsive to interest rate changes when interest rates are low.
Can it be quantified what this might mean for housing prices, given that rates are expected to remain broadly unchanged for the next three years?
It's not easy to do accurately given the diverse nature of markets, but it wouldn't be at all surprising to see the mean dwelling price increase by more than 20 per cent from $689,500 to $830,000 according to the research of J. Fabo at Macquarie.
Throw in income growth of 5 to 10 per cent over the next three years and the revival of some vaccinated animal spirits and prices could rise by 25 to 33 per cent without being remotely out of whack with long run interest serviceability ratios.
