Aus housing: prices surge despite Delta dampener

National house prices continue to rise strongly, even in Sydney where increasing levels of mobility restrictions have been in place since June in response to the rising number of Delta variant COVID-19 cases.

“Recent growth in housing finance suggests prices will continue to rise solidly in coming months.”

ANZ Research have bumped up housing price forecasts a little and now see prices rising just above 20 per cent in 2021, on average, across capital cities.

Some slow down in price growth is anticipated over coming months, driven by slightly higher mortgage rates, decreasing affordability and the potential for macroprudential tightening.

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The risks to the outlook appear evenly balanced. While the current momentum in prices suggests growth in both 2021 and 2022 could outpace ANZ Research’s forecasts, particularly if macroprudential tightening is delayed, the increased uncertainty around the Delta variant and extended lockdowns pose some offsetting downside risk.

House prices rose a rapid 1.9 per cent month-on-month in July and were up 6.6 per cent over the previous three months.

Strength was broadly based with Sydney (+2.1 per cent month-on-month) and Brisbane (+2.1 per cent) leading the pack. Momentum was also evident in Hobart (+1.9 per cent), Melbourne (+1.8 per cent) and Adelaide (+1.8 per cent), while Perth made the smallest gain (+0.8 per cent). Prices are now well above year-ago levels across all capital cities.

Recent growth in housing finance suggests prices will continue to rise solidly in coming months. While owner-occupiers were early drivers of the market, investor lending is now surging. Over the six months to June, investor lending rose 55 per cent and has more than doubled since June last year.

While still running at a solid clip, owner-occupier lending has slowed a little, largely because of a pull-back by first home buyers. Over the six months to June, lending to first home buyers fell 3 per cent while lending to other owner-occupiers rose 23 per cent. Overall though, momentum in housing finance is slowing after a year of stellar growth.

At a glance

House price expectations remain elevated despite the uncertainty.

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The ban on in-person inspections has seen clearance rates drop sharply in Melbourne but daily data show prices have continued to rise solidly, albeit at slower rates to Brisbane.

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Despite more than two months of lockdown restrictions, sales in Sydney have remained very high.

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It’s not just Australia. Record low interest rates are pushing up house prices around the world.

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While housing finance is coming off the boil, house prices look set to continue to rise solidly with growth in new housing finance commitments looking like they have peaked.

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Housing finance has risen rapidly and refinancing has picked up again.

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The investor share of finance is picking up quickly while the share of first-home buyer finance has declined.

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Households and businesses remain upbeat about the house price outlook but worries about affordability are rising.

House price expectations remain elevated as affordability constraints bite - “time to buy a dwelling” was down sharply.

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Property industry participants continue to expect strong house price gains with expectations still very positive across the states

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Felicity Emmett and Adelaide Timbrell are Senior Economists at ANZ

This article was adapted from an ANZ Research insight paper, which can be read in-full here.