A few weeks ago, economist Warren Hogan explained that Australia’s housing market was experiencing “FOMO on steroids”.
Hogan noted that the perception that Australia is suffering from a “massive shortage of homes” has motivated buyers “to do whatever they can to get in [to the housing market], no matter how ridiculously expensive houses are”.
Moreover, buyers expect the shortage to last for years, which means that prices will continue to rise.
“It’s not just fear of prices going up by 3% in the next three weeks, it’s the expectation that prices will go up by 20% in the next two to three years”, Hogan said.
“Australia has never had a severe shortage like this in recent history. The reality is that there is price tension in the housing market because rents are going up, because of the shortage of rental property, which is underpinning demand from first-home buyers and investors”.
“It’s not just the bank of mum and dad, it’s also the bank of grandparents, or the bank of aunties and uncles”, he said.
The FOMO described by Hogan above is illustrated by the next chart showing the record gap between housing demand (population growth) versus supply (dwelling construction):
It is also illustrated by the next chart from Justin Fabo at Antipodean Macro showing that the total number of homes listed for sale in Australia declined over May and June and has collapsed to historically low levels:
As well as the next chart from Shane Oliver showing the collapse in the rental vacancy rate alongside the surge in rents:
Source: AMP
The historically high net overseas migration that is driving demand in a market with limited supply is what is underlying all of this FOMO.
