Property market blooming not bubbling say bankers

Australia's blooming property market is not in bubble territory and borrowers are well placed to service their debt obligations and accommodate an interest rate rise, says a report released yesterday by the Australian Bankers Association.
 
The report, "Key truths on housing in Australia" looks at the changes in house prices over the last 25 years, the main influences on house prices and the state of household finances.
 
It argues that, despite the lift in house prices resulting from low interest rates, housing affordability has actually improved.

But, although it finds no evidence that housing is now unsustainably over-valued, the report says house prices have probably passed their peak in the current growth cycle.
 
The ABA's chief executive, Steven Münchenberg, wrote that, "to effectively assess market conditions, it is important to look back on past trends in house prices and ensure we are getting the complete picture."
 
"Our analysis shows that the recent rise of house prices in Australia is not unusual when compared with historical trends, and the current house price growth has not exceeded the peak rates we saw before the global financial crisis."
 
The report states that, since the GFC, volatility in the growth of house prices has increased, with two episodes of quite marked national declines in prices. These have been followed by strong rebounds in prices, although these periods of rising prices have not exceeded the peak growth rates of the pre-GFC era.
 
The most recent data, up to the quarter ended December 2014, suggests the nationwide rate of growth in prices, on average, has already peaked.
 
Household finances are robust, though, the ABA said, with borrowers, on average, well placed financially to withstand an increase in interest rates or other event that may cause increased financial pressure.

"The value of household assets is greater than the value of household debt - for every $1 of debt held by Australian households today, they have almost $6 of assets. Additionally, latest figures show that households are, on average, 21 months ahead of their scheduled mortgage repayments," Münchenberg said.
 
The report shows that, while low interest rates are the primary influence on house prices, they are also contributing to the strong state of household finances.
 
The ABA cited Bank of International Settlement data showing the overall increases in Australian residential prices since the GFC were not out of line with those in some other developed countries.
 
Since March 2008, property prices have risen by almost 28 per cent in Australia - about the same as in Canada and Norway, where property prices grew by 29 per cent and 34 per cent, respectively. Overall, of the 18 countries analysed by the BIS, ten have experienced house price growth since 2008.
 
According to the report, Sydney has been the strongest market over the past 12 months, with increases in established house prices of 12.8 per cent in the 12 months to December 2014.

In another report circulated yesterday, UBS Securities said that, given the RBA had resumed its easing cycle, it expected a stronger for longer boom in Australian residential construction.

UBS had earlier forecast that house price growth would moderate towards seven per cent in 2014 with a further slowing in 2015 to three per cent. But the recent RBA's 25 basis point cut in February, which caused prices to re-accelerate, has led UBS Securities to double its expectation. It now forecasts house price growth to stay high at six per cent in 2015.
 
UBS noted that price growth remained concentrated in Sydney which re-accelerated to a booming 13.7 per cent in January, while Melbourne eased to 7.4 per cent and other capitals remained much more subdued.
 
 Meanwhile, the Bendigo Bank/REIA Real Estate Market Facts Report for the December quarter 2014 shows median house prices increasing in most capital cities, with the exceptions of Perth, Hobart and Darwin.
 
Bendigo's executive for retail, Dennis Bice, said Melbourne median house prices recorded the strongest growth (5.3 per cent) for the December 2014 quarter, while Sydney grew by 4.5 per cent.

"Parts of Brisbane and Adelaide also recorded increases with the apartment market median price in Adelaide growing by 5.7 per cent," Bice said.
 
At A$881,971, Sydney's median house price is the highest among the capitals. Hobart continues to have the lowest median house price of any Australian capital city - at $360,000 the figure is 43.9 per cent lower than the national average.

The weighted average median price for other dwellings for the eight capital cities jumped above the $500,000 mark and is now $512,585. When compared to the same time last year, the weighted average for the eight capital cities for other dwellings went up by 6.5 per cent (although Darwin had a median price three per cent fall and prices remained stable in Brisbane and Canberra).