The big differences this property boom

The Australian property market is clearly on a tear, growing at a double-digit annualised pace on the back of rock-bottom mortgage rates and unprecedented government stimulus.

On the one hand, a property price boom in Australia is nothing unusual, given Australia has experienced several similar episodes over the past decade, as illustrated clearly in the next chart:

However, according to Fairfax’s Clancy Yates, there are some major differences this time around compared to previous property booms, namely:

  1. the price boom is being driven by owner-occupiers, rather than investors; and
  2. the boom is occurring amidst negative net overseas migration (NOM) and the slowest rate of population growth since World War 1.

On both counts, Yates is correct. Net long-term arrivals into Australia – a proxy for NOM – has turned negative for the first time in data dating back to 1976:

The Australian Bureau of Statistics’ lending data also shows that new owner-occupier mortgage commitments have surged to record high levels, whereas new investor mortgage commitments remain well below their 2015 highs:

Another difference this time around is that the boom in dwelling prices is being led by the smaller major capital cities of Perth and Brisbane. This is a stark contrast from recent booms, which were driven overwhelmingly by Sydney and Melbourne:

Obviously, Sydney and Melbourne are far more reliant on mass immigration, especially with respect to the inner-city apartments, which is likely weighing on their growth.

Regardless, this current property price boom has a different flavour to past episodes, due to the factors outlined above.

Unconventional Economist

Comments

    • It actually is different. RBA found a new trick with TFF money printing being able to send mortgage rates to zero or negative if they really wanted to.

        • Actually, it’s exactly the same as last time, and the time before that, and the one before that, all the way back to the 90’s when grunge was mainstream and housing had barely begun to go insane…

      • Jumping jack flash

        Nah, TFF isn’t that much different from lowering the cash rate, it has a very similar effect in that it allows the banks access to cheaper debt to on-sell for cheaper. Its not that astounding in the scheme of things.

        The difference this time is the government granted a ton of pent-up demand access to the ponzi buy-in fee, from their own super no less. It was a masterstroke in my opinion.
        ~36 billion of super translates into a fair amount of debt at 95% LVR, even if you take a fraction of that.

        More interestingly, how do those household savings figures look these days?

        It would also be interesting to see the volume of new debt, compared to the volume of super withdrawals with around a 6-month lag.

    • buttzilla thirtynine

      yup sold the place in Burleigh, 2M up from 550k, bought in ’13. win. still have another in Burleigh for the bolt-hole-rush, when it all goes belly-up soon.

      Bcnich – u are correct. dumbasses here will be – b a g h o l d e r s.

      ps. the regions-rush has been f***ing hilarious, polly’s directly bailing themselves out – they own this s**tpile land and are cattle-gating morons around. LOL!

  1. Tell me about it – the Gold Coast is nuts. Trying to buy a modest 4-5 bedroom house is almost impossible and most I am bidding on are being bought up with cash offers from NSW or Vic buyers. Feel like I am the last bear to capitulate (been waiting many years now) and I am forced to buy at the worst possible time. Arrrrgggh!

    • call me ArtieMEMBER

      Hey Empire mate. I feel bad for you. The whole thing is a rigged game

      In Australia there is no room for analysing the economy and the market as an investor. There is only one thing to do, follow the herd and you will be taken care of. Borrow the max…forget about paying it off, that will be taken care of

      BTW you are not the very last bear to capitulate. But my circumstances are different. I am retired so cannot borrow, but I have a fair bit of capital. I am going maximal into equities. More opportunity to use my brain there. Going into property feels like boarding a sinking ship with all my possessions. However, renting is still sh!t in Australia

      Artie

      • Tell me about it. I visited two properties in the last 2 weeks both sold within 7 days. One was 500,000k over asking.

      • I’ve got a couple of properties but still remain bearish.

        Cant really see how it’s all sustainable irrespective of current trends. I think the timeline is being stretched but the result is still imminent.

        Hate to bring the cold spoon to Reusa’s Boom Boom Boom party but I can’t see how all the obvious desperation ends up any other way.

    • Goldstandard1MEMBER

      So don’t buy. You most certainly aren’t the last bear to buy and now is probably the worst time to buy in the last 20 years.

  2. Seems like prices are about the same as they were in 2017. maybe they will still be about the same in 2025?

  3. The Sydney and Melbourne Corelogic indices are accelerating upward at a rate that I haven’t observed in the last 4 years.

    It’s quite sickening, both from the perspective of a vast misallocation of capital and for the effect it will have on the ability of our children to afford a simple necessity like shelter from the elements. These is so much opportunity being missed here…such a giant fcking waste of time and effort. 🙁

    And beyond sickening, I can’t really describe the anger I feel at this being driven by the institutions of our society…politics, the law, finance…to benefit the few at the expense of the many. Well…I could describe it, but this is a family friendly channel.

    • strange EconomicsMEMBER

      Relax – you can give your kids 300K each out of your untaxed capital gain.
      Thats why the kids are not starting a revolution like they should , half of them are bought off – just have to hang on till the old’s hand some over.
      Bad luck if you your parents were bears.

    • The Shire is crazy for price rises because there is a lot of big blocks of land ripe for subdivision or development.

    • That park in front of that house used to have an old rundown house on it. It was acquired by the council and turned into the park you see now. I bet the owners of the just sold house were happy with that decision.
      Those two houses used to be a surfy/party hangout in days gone by.

    • Strange EconomicsMEMBER

      And the mortgage interest is 1% – 50 K a year. i hear ” Cheaper than renting. ”
      It will sell for 10 million when interest rates are 0.5%.

  4. Still doesn’t explain in what is practically a closed system (zero NOM) how it is owner occupiers. Are they buying second homes? Are they renters and if so where’s the commensurate boom in vacancy rates?

    • Its specifically owner occupiers.

      Investors (including second homes) has not changed at all, FHB is still the same roughly with a slight uptick – absolutely NOTHING like 2009.

      There is one thing that explains it – down to the last penny TFF.

      Honestly its such a b*llsh*t conversation – its getting tiresome listening to people – especially this website – avoid the basic questions. Its like listening to Scomo dodge the issues.

      Its honestly so absurd that ANYONE is believing this let alone the mass hysteria on this website.

    • People can just keep swapping properties at higher and higher prices. Lower rates means hands stay up longer at auction.

  5. I can’t work it out anymore. Live in SA – an economic backwater- but things are going ballistic. RE is crazy and even rubbish is being snapped up. Just recently retired and want to downsize but now too frightened to make a move in case I get timing between sale and purchase wrong.
    We are in the middle of a pandemic but you wouldn’t know it. City bound traffic is horrendous even outside what I would consider peak periods. My understanding is that a lot of people – especially public servants – are working from home so beats me why there is this amount of traffic heading to the city.
    Shops are buzzing as are retail malls. Labour is in short supply too – but mainly for sh!tty jobs – but still.
    Nothing feels right.

    • adelaide_economistMEMBER

      I could suggest a few things. Internal migration drain is way down on typical levels thanks to covid, SA is part of Australia so there’s the whole interest rates available starting with a 1.x thing here too, the move to regions / away from dense development favours plenty of places here, the Premier has issued orders that all public servants who can work from the office should return (to stimulate the cafe economy I imagine), people are avoiding public transport so those who are going to the office are driving more than before, the State Govt (underpinned by RBA promises to pay debt) is running gigantic deficits – and plenty of interstate and foreign money generally. The ‘competition’ for the place I bought was based overseas and had a local connection inspect it for them. They (like me) fully expect the population ponzi to resume within the next 2 to 5 years.

  6. Used to be exciting when one got a good value for any purchase i.e. cars, education, furniture, travel; the list is long. Wrt to Strayan houses, the extraordinary enthusiasm currently seems to be driven by ” how much she’s gonna’ go up” which then translates into a present day shot of dopamine where the buyer is considered tall, good-looking, smart and funny and possesses a good singing voice too.
    I guess it means nothing (anymore) that the quality of dwelling is usually so poor and that on an analogous currency converted stage in Euroland or No America, we’re paying 200-500% more for equivalent homes.
    What’s more, there exists a real creepy delight by those that find joy in the astronomical levels of debt that are required to enter the party where the clinking glasses and raucous laughter never ceases.

    Seems now that there’s no room for the speculators that took the edge off the usual market highs and lows as there can’t ‘be’ any lows anymore. Not sure where this all ultimately leads but from a ‘value’ perspective, nothing even comes close. This is a ‘party’ where I just know I’m not welcome.

  7. Jumping jack flash

    This boom isn’t too different from everything they’ve tried over the years, they just went all in at the same time.

    We had an interest rate cut caused by what is essentially a subsidised banking / mortgage system
    We had unprecedented amount of stimulus in the name of COVID which was (in my opinion) primarily used to obtain debt with, so it was more like a buyer’s incentive, except it wasn’t just for FHB. Upgraders, downgraders, sidegraders were also able to jump in.

    There was a ton of pent-up demand for debt due to the following simple reasons:
    Debt has been cheaper than ever, but access to debt isn’t the reason why many people can’t afford to buy into the property ponzi, the reason is the pozi buy-in fee which is, ludicrously, a percentage of the asset purchase price! Asset price goes up, so does buy-in fee!

    (That’s no way to run a good ponzi. Bernie Madoff would be able to tell them that you fix the buy-in and then you get more participants! Make deposits an arbitrary, fixed amount, say, 20K, or use some kind of bracket system, and then the banks cough up the rest. There’s no risk as long as you believe there isn’t, and as long as enough debt is being pushed into the market to ensure there isn’t any risk.)

    Anyway, if anything proved the amount of pent-up demand for debt it is this event, coupled with the super release in the name of COVID. Little wonder either because debt is absolutely as essential as access to clean water and air, and to not be able to access adequate amounts of debt is bordering on a crime against humanity these days.

    • RobotSenseiMEMBER

      Make deposits an arbitrary, fixed amount, say, 20K, or use some kind of bracket system, and then the banks cough up the rest.

      I think the Federal government called that a “First Homebuyer Grant”

      • Jumping jack flash

        Genius!

        It worked great back then, as it does right now, and not just for FHB either.

        Look at it go!

  8. reusachtigeMEMBER

    How come not many people are pointing to the fact that maybe the buying power of those returning due to the bad cold season is much higher than those leaving or those new migrants that would have come?

  9. For us, our decision to buy was purely based on serviceability of a mortgage vs rent plus how our savings were working (or not).

    We’re paying $60 f/n extra in mortgage repayments than we were in rent. We had no other debt and were saving about $1500 f/n anyway. Putting everything in an offset account attached to the mortgage gives us a theoretical timeline of just over 10 years to own the home (all other things being equal) and the interest savings attached to that are doing more work for us than they were in a HISA.

    I think it’s simply a case of housing now being somewhere to keep your savings.

    • Goldstandard1MEMBER

      Oh my god, and that is going to blow so many people up it’s not funny.
      “I have my savings in my house which I own 10% of”. That is INSANE logic.

    • If global speculation moves out of tech stocks into say food stocks we will have rampant inflation and interest rates.

      If bond yields continue to rise – rampant inflation / interest rates.

      If currency continues to devalue – rampant inflation / interest rates.

      If global supply chains continue the trade war – rampant inflation / interest rates.

      There is almost nothing pointing to low interest rates outside of the armagedon facing central banks and therefore their “desperate desire” to keep them low – mathematical reality says otherwise – as do all the leading indicators.

      Mortgage repayments on a million dollars are only $3,600 / month at the moment. Long term they are $8,000/ month – how would triple your loan repayments work out for you ?

  10. A mate’s daughter was a lawyer in London. She’s now a lawyer in Canberra due to Covid and just overpaid a large amount for a property because she had the money and didn’t want to live with her parents at the age of 32.

    I just overpaid a large amount of money for a house because I’m going to retire next year and wanted to own my home rather than rent. Also, I grew weary of disposing of the bodies of the twenty-something RE agents who inspected my home every six months and kept telling me I didn’t meet their standards.

    Anyway….there’s two pieces of anecdata. Multiply that by all the returnees and all the people who couldn’t wait any longer…

  11. Arthur Schopenhauer

    All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.

    Another disagreeable Prussian.

  12. Well the two states with the best economies due to resources seem to be house price rises the most.bgiven at a lot of expats are returning from os and people move to states with the current best covid suppression. But the vaccine is here. Europe and America infection rates are dropping. The distribution here is too slow at the moment but when it reaches critical speed the borders are going to stay open internally. When domestic travel resumes you will find FIFO return to normal and demand for property in those states will drop. Companies will demand return to office of remote workers. Job keeper is ending soon and how many with new mortgages will have reduced income. the boom in those two states could turn around a lot quicker than people expect.

    • alwaysanonMEMBER

      I’m in IT Sales and was invited to a meeting in person at a customer’s office in Sydney for the first time since March of 2020. The CBD was busy. When I got there their office was nearly full. They (a bank) had told their staff that they were now expected to be in the office at least 50% of the time starting this week. I found that in a swing through our office on the way there that on Tuesday-Thursday we are also at near 50% full/old capacity too (I am told that people are taking a four day weekend and doing M and F at home still by and large). We went to a pub nearby after the meeting and actually got turned away from the first one as it was at capacity – on a Wednesday at 4:30. The second one we just barely got in before it was also full (you need to all be seated atm in NSW). It was going off.

      I’d say we are like 1-2 weeks of no cases more and Sydney will feel almost back to normal.

  13. Chalk me up as other bear to capitulate.

    I’ve been renting. I have purchased a property in possibly one of the worse market segments in Australia. Melbourne units. But hey. My repayments, principal +interest + ownership expense are equal to what I’d otherwise be paying in rent. Also I got lucky on hard negotiation on the eve of Melbourne’s 5 day lockdown. I payed ~15% below market by my surveys pre and post purchase.

    The market is hot now but I can’t see it lasting particularly in inner Melbourne. I see this as the last hoorah upwards before a long stagnation or decline. Inner city units and outer suburbs new developments being most at risk.