SOMP musings
The housing market still has plenty of momentum, despite fixed mortgage rates bouncing of their lows (while some variable rates have actually been cut, due to the fierce competition between lenders).
The Reserve Bank of Australia forecast in this week's SOMP that inflation won't hit the mid-point of its target range until the end of 2023, so increases to the cash rate are likely to be some way off.
Whether or not that scenario actually plays out, interest repayments as a share of household income are still running at near 40-year lows.
In any event, with interest rates only likely to rise gradually, fears of a property crunch have been massively overdone.
The Reserve Bank highlighted that rising housing prices have been a feature of the pandemic globally, with stimulus packages bolstering incomes and low interest rates clearly contributing (one might also add that the reduced ability to travel, holiday, and spend internationally has been a factor).
In fact, since 2016 - just before the Aussie property market when into a regulator-induced downturn - in terms of indexed housing price growth Australia has arguably been a relative laggard, especially when compared to New Zealand, Germany, the US, or Canada, for example.
Housing price growth has been quick over the past year, of course.
But over the past five years price growth in Australia has been quite normal, at a total of only 27 per cent at the national level.
Source: Reserve Bank of Australia
In Sydney, Melbourne, and Brisbane housing price growth over the past half-decade has only compounded at about 5 per cent annually, despite the huge decline in borrowing costs.
Now asking rents are rising at a double-digit pace, and with marginal borrowers benefiting from recent boosts to pay packages, I'd say all three of the major capital cities have plenty of legs to run from here.
Tighter rentals
There will be a huge boom in the pool of renters over the next five years as the borders reopen, as the first homebuyer stimulus washes through, and as mortgage rates edge higher.
The potential building pipeline has increased as Sydney developers have looked to push through unit developments ahead of 2022 changes to the national construction code.
But approvals not yet commenced are running at almost twice their normal levels, and due to a dearth of pre-sales to foreign buyers few large projects have progressed and the actual new unit supply has dwindled.
Detached house approvals have been running at record levels, but again many have not seen a sod of earth turned as affordable tradies and building materials have been so hard to come by.
