Mortgage market points to once-in-generation property boom

As regular readers know, I consider the growth rate in new mortgage commitments to be the number one short-term indicator for Australian property prices.

This is due to the incredibly strong historical correlation between new mortgage commitments and dwelling value growth.

On Thursday, the Australian Bureau of Statistics (ABS) released data on new mortgage commitments for the month of February, which reported the strongest annual rate of growth in the series’ history, driven by owner-occupiers:

Australian mortgages

The strongest mortgage growth on record was reported in February by the ABS.

In the year to February 2021, the value of new mortgages issued grew by 49%, exceeding the previous peaks of 41% (September 2003) and 37% (August 2009).

As illustrated in the next chart, this boom in mortgage growth is pointing to strong property price appreciation across the combined five major capital city markets:

Mortgage growth vs property prices

Based on historical correlations, the boom in mortgage commitments is pointing to further strong property price growth.

The story is similar across each of the five capital city markets, which are all experiencing booming conditions.

The next chart shows Sydney, where mortgage demand is approaching prior peaks:

Sydney mortgage vs property prices

Sydney’s mortgage demand is approaching prior peaks, signaling strong property price growth.

Melbourne is experiencing the strongest mortgage demand since 2009, pointing straight up for property prices:

Melbourne mortgage demand vs property prices

The growth in Melbourne’s mortgage demand is the strongest since 2009.

The growth in Brisbane’s mortgage demand is the strongest since 2003, pointing to a possible 20% lift in dwelling values:

Brisbane mortgage demand vs property prices

The last time Brisbane mortgage demand was this hot was in 2003.

Perth’s mortgage demand is even hotter, breaking all prior records, and pointing skywards for property prices:

Perth mortgage demand vs property prices

Perth’s mortgage demand has never been hotter.

Finally, Adelaide’s mortgage demand is the hottest since 2003, with prices following:

Adelaide mortgage demand vs prices

The last time Adelaide’s mortgage demand was this hot was in 2003.

In short, a synchronised mortgage and property price boom is currently taking place across Australia.

We will know that the boom in property values is beginning to wane once the growth in new mortgage commitments starts to fall.

Until then, onwards and upwards.

Unconventional Economist
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Comments

    • Charles Solomon

      As someone else posted here recently: betting against Oz housing market is pointless because you are effectivly betting against the RBA, the government and against at least 5 different very large lobby groups. In the next 18 months, we will again see a massive raise in Oz property prices that litererally nothing can stop.

      • Jumping jack flash

        It will rise to the next level of equilibrium based on the amount of, and rate of growth of, new debt in the system.

        But they missed their golden opportunity to actually transform the economy to allow perpetual debt (again), on the back of controlled hyperinflation.

        The fools!

  1. Ritualised FormsMEMBER

    Anecdote from me over Easter.

    House, suburban Geelong, purchased for circa 450K in 2016.  According to ontheHouse.com it would swing 650-700 at the moment.

    Good Friday a letter goes into my box dropped by RE agent – fairly generic, stating ‘we have a lot of buyers interested in this neighbourhood’ yada yada – I ignore it.  Same as I ignored the guy dropping leaflets a month ago, and some due doorknocking on behalf of another outfit maybe 6 weeks ago.

    Saturday eve, I get home from the pool.  There is a letter in the box.  Blank envelope.  Inside letter is hand written, very neatly.  Is addressed to owners of house at my address.  Says person is very very interested in buying in my street.  Nominates potential figure above Onthehouse.com, and seen pics from sale of a few years ago.  Says has ID’d all relevant details from Google, but is keen to buy abode. Wants to meet.

    The following morning I have a chat with gent over road (he and Mrs are in 80s).  They have had same letter, varied for their place.  Indian family over road have had same, Bloke next door (a FIFO in WA) and his wife have same.  Author of letter obviously knows house on other side of them is Social Housing but is still offering over the suggestion retail value.

    I seriously think this country has lost the plot.

    • What is the issue with people writing persona letters?

      We did the exact same thing in a tightly held regional village in NNSW, shook out some sellers and negotiated directly buying from them. They saved time and money and we payed about 10% under market value

    • DingwallMEMBER

      Australia has been dumbed down to a level of embarrassing lows. Australia has become Golgafrinchan Ark Fleet Ship B from The Hitchhiker’s Guide to the Galaxy……..filled with all the worst of the middlemen people of the world, such as the real estate agents, public servants doing nothing, baristas, tradespeople supporting the real estate industry, lawyers, account executives, Uber drivers, the entire production crew and backroom staff of The Block, tired TV presenters, insurance salesmen, personnel officers, public relations executives, management consultants, and the worst of the world’s politicians.

    • RF – Curious what postcode in Gtown?
      I’ve been looking on and off in and around Manifold Heights, East Geelong, pockets of Newtown and Belmont. The prices have gone silly.

      Even out in Lara I saw a place pop up that, while not ideal, would have worked for me. It went under contract in under a week. This would have been at least $50k cheaper just 12 months ago.

      19 Boydell Court, Lara
      https://www.domain.com.au/19-boydell-court-lara-vic-3212-2016846206?utm_source=Android%20app&utm_medium=sharelisting

    • Andrew Veniamin

      Yup – if you actually look at the numbers they are pretty scary – in a bad way.

      Perth has a 44% increase in mortgages – ok that seems A LOT – but that is off half a decade of negative growth. So even a slight uptick is going to show up as a massive PERCENTAGE increase.

      Thats the key here – its all percentages making it look huge – the real numbers are incredible bad. If you consider all the major markets which account for 80% of sales have been negative and only just turned positive it makes a mockery of the narrative in REAL NUMBERS instead of percentages.

      Sydney had a negative 28% turn around in prices in 2019 – not even talked about.

        • Andrew Veniamin

          From the graphs above mate. Thats my point.

          Sydney and Melbourne account for over 50% of all urban house sales (probably close to 60%) with their values being at least 30% higher than anywhere else – and on average at least 50% higher – 80% of Australia’s housing value is in Sydney and Melbourne which according to the above charts have barely moved above zero in Melbourne.

          These are localized booms in highly selective regional markets which are being used as data to extrapolate across the broader market.

          There is literally a war footing in Canberra to save the Australian economy and the green light has been openly given to say and do what ever is necessary to save our markets – that means, necessitates lying through their teeth on housing – so be it.

  2. Charles MartinMEMBER

    Anecdata from Easter gathering.
    Block of land in Auburn about 800 square – old house on it burned down because of schit electrics and it being full of crap because inlaws grandmother was a hoarder.
    Dead flat and ready to build on, real estate bloke reckons they can get over 1 million for it.

    • @Osiris
      No offence intended but my first thought is ‘F em’ as that’s the general attitude towards renters. They can’t or won’t afford a mortgage so ‘F em’ they can go sleep in the street, in a car, their adult children or grandchildren place..etc just like all the other homeless:))

      • Jumping jack flash

        No! The problem is debt eligibility.
        The government must do more to help people become eligible for the debt they need.

        It isnt the renters’ problem. It is the eligibility rules.

  3. FUDINTHENUDMEMBER

    Just throw all your money and debt at the markets! Any market! Crypto! Housing! Stonks! Second hand cars! Footy cards! Individualised NFT moon bases! Someone will pay you more for it in the future: Garanteed ™! We’re all gonna be RICHHHHHH!

    • That’s about it, my stonks have just increased in value to $90k, mid covid-19 lockdown (April last year) they would have been worth $35k. Same wth my Crypto, all but doubled in value. Vintage cars the same. I don’t really feel richer though, because I feel this is only temporary and will all swing back and correct in a rather nasty way in the not too distant future.

  4. Jumping jack flash

    A bit of a flash in the pan in my opinion. It will all peter out very soon because they missed their opportunity to transform the foundations of the debt economy to carry more debt. This required stopping wage theft and spurring on CPI and then wage inflation, supported by leveraged COVID stimulus to fill the gap between rising prices and rising wages. They foolishly did the opposite, and greedy business owners were allowed to pocket the windfall.

    2019 proved without a doubt that leveraging rising business owner wages (primarily from wage theft) is not adequate on its own to grow the debt at the correct rate to avert collapse.

    It is no secret that the boom was fuelled by access to super in the name of COVID which had the effect of a FHB grant, but for everybody.

    Now that “irresponsible” lending has been quashed, and also using super for deposits [for now], i dont think we will see a repeat of this any time soon. Unless things get desperate of course. And they will.

    If nothing else it tested the water with regards to how successful allowing access to super for deposits would be to keep house prices elevated, if it is required in the future. The answer is: very.

    • ChristopherMEMBER

      Jack, you are missing our on the whole self reinforcing nature of this though. Those that have sold to FHBs now have the extra cash to jump in and spend elsewhere. These feedback loops have a long way to run before the peter out.

      • Totally agree, lots of feedback loops that feed into the “win and never lose” psyche that is a part of the Aus Property ponzi.
        I’ve been a bear for a lot longer than i’d like to admit, and something that has only revealed itself in the last few years is just how entrenched the infinite house growth narrative is not just to the national psyche but also the system. A decade ago everyone saw what happened in the US and Ireland, whatever goes up at a crazy level must come down in a similar fashion, but their systems were not primed directly at property, theirs was directed at the banking sector, property was just the biggest beneficiary of that. Our system has been primed for rising property values as the target, and everything flows back from that.
        Hence why anyone whose bet on the crash, Steve Keen, Martin North and yours truly all have egg on our faces. Turns out you can suspend economic gravity for as long as you wish. In saying that I think this is experiment that has no precedent anywhere else in the world, so who knows what will happen

      • Andrew Veniamin

        Job Keeper was handed to companies to employ people on full time wages to mask unemployment – banks were none the wiser to anyone who applied for a loan but had lost their jobs.

        In the last quarter with data available there was 1.5 Million people with Job Keeper still – this is before we look at the hundreds of thousands of small businesses which will face the wall.

        The banks are potentially facing on the most CONSERVATIVE ESTIMATES between $80-$100 Billion in failed mortgages.

        Sure the RBA can conjure up another TPP- but Australia has tripled its deficit, bad enough – but it has now also doubled its national debt – with even states like Victoria $60 Billion in the red.

        We are going to get downgraded to hell, our FX will crumble as the ore tide recedes this year all in a merging of a perfect storm.

        Anyone who thinks this wont smash our banks into oblivion is having a healthy serving of hand shandy.

        ..

        • The90kwbeastMEMBER

          Lol – as if credit ratings matter. Didn’t the GFC teach everyone this?

          There is no way Australia’s credit rating is getting downgraded soon, and it doesn’t matter what the deficit is per MMT. Everyone else is doing it anyway so it’s all relative even if we are to run with your concerns.

        • Jumping jack flash

          “Job Keeper was handed to companies to employ people on full time wages to mask unemployment – banks were none the wiser to anyone who applied for a loan but had lost their jobs.”

          It sure was!
          Jobkeeper was a wage subsidy to bridge the gap between rising CPI and wage inflation.
          Instead of passing it onto the workers, greedy business owners kept it for themselves.

          2019 proved beyond a doubt that relying on business owners alone to drive debt inflation (through the magic of wage theft) doesn’t work to prevent economic collapse.

      • Andrew Veniamin

        To add to this – Australians have ZERO interest in what if. What if I lose my job, interest rates change, economy collapses, Job Keeper ends – it never matters to anyone, literally no one cares because if that happens just sell. You will only make money.

        I do not know anyone who does not think this way – including bankers and brokers.

        • working class hamMEMBER

          This is the new way, the Australian way. I don’t understand it, but it is the reality we live in.
          Hesitate or hedge your bets and watch as your deposit gets annihilated by morons leveraged to the hilt.
          The fact that most investors have actually already cashed out, and bought back in should not be underestimated.

          • Jumping jack flash

            Not just Australia.

            The banks rule the earth. The banks produce and then sell debt. It is all they do.

            Debt is absolutely unnecessary in a properly functioning economy that skillfully transforms raw materials into useful items to sell to the world for profit, but the banks have changed the rules to ensure their debt, and its continued growth, is an absolutely essential part of the natural economic cycle now.

      • Jumping jack flash

        @Christopher, “Those that have sold to FHBs now have the extra cash to jump in and spend elsewhere”

        You may be right, and I hope this is the case. We will know if it is the case by rising CPI.
        Note, that if the people receiving the gargantuan wad of someone else’s debt spend that on houses, then the effect is pretty much negated, and we will see 2019 resume, and businesses will resume closing.

        I thought that CPI should be detectably rising by now, but not a skerrick.
        And I thought that wage theft would become unnecessary for business owners due to rising CPI, but again, they are campaigning for, and gearing up to resume wage theft.

        We will see, and part of me remains hopeful, but I fear they missed the boat on this one.

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