House price growth hits 17-year high, but is it slowing down?

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You’d have to go all the way back to the 2004 Athens Olympics to find a time when house price growth was faster than it has recently been. But latest data suggests the golden run has started to slow down.

It’s no secret that house prices have reached record-breaking highs this past year.

In fact, the average national home value grew by 16.1% over the past 12 months – the fastest pace of growth since 2004, according to CoreLogic’s latest Hedonic Home Value Index.

This is due to the age old law of supply and demand. When the demand for housing is high but supply is low, home prices often rise. When there is a surplus of housing available on the market, prices tend to be lower due to less demand in the market.

Dwelling sales are currently tracking 40% above the five year average, while active listings remain -26% below the five year average. Anyone who is house hunting at the moment will know this to be true simply by the amount of foot traffic at auctions or opens.

But it’s not all doom and gloom for potential purchasers as there are signs that the growth rate is starting to taper.

Signs of a slow down

Australian housing values increased 1.6% in July, a result CoreLogic’s research director Tim Lawless describes as “strong, but losing steam”.

This is still miles ahead of the national 10 year average of 0.4%, but lower than March this year when growth was listed at a whopping 2.8% nationally.

And in a further sign of a property market slowdown, the value of new housing loan commitments fell 1.6% in June, the first fall in monthly lending figures this year, according to the latest Australian Bureau of Statistics data.

So what’s slowing things down?

With dwelling values rising more in a month than incomes are rising in a year, housing is simply moving out of reach for members of the community, Mr Lawless explains.

Additionally, much of the federal government’s earlier COVID-19 related fiscal support, including JobKeeper and HomeBuilder, have now expired.

“It is likely recent COVID outbreaks and associated lockdowns have contributed to some of the loss of momentum as well, particularly from a transactional perspective in Sydney which is enduring an extended period of restrictions,” CoreLogic’s latest Hedonic Home Value Index report adds.

That said, it should be noted that housing values are still continuing to rise substantially faster than average.

So what’s ahead?

Overall, Australia’s housing market remains in a strong position.

It’s possible market activity could reduce through the second half of 2021 as affordability constraints become more pressing and housing supply gradually lifts, says CoreLogic.

“Other potential headwinds are apparent, including the possibility of tighter credit policies,” adds the CoreLogic report.

It’s important to note that a slowing of growth won’t necessarily mean that house prices will decline from current levels. It simply indicates that the rate of growth may not continue at the rapid pace we are currently experiencing.

Demand remains strong and is being aided by record-low mortgage rates and the prospect that interest rates will remain low for an extended period of time.

“A lift in the cash rate is likely to be at least 18 months away,” CoreLogic adds.

“The recent spate of lockdowns is likely to see Australia’s economy once again contract through the September quarter, a factor that is likely to keep rates on hold for a while longer.”

Get in touch

With house prices having just experienced their fastest pace of growth since 2004, it’s as important as ever to purchase your new home with a finance option that’s right for you.

It’s equally as important to purchase at the right time for you and your families needs, rather than trying to pick the right time in the market. Property is a proven long term wealth creator so entry market conditions can be irrelevant when you have a long term holding strategy.

So if you’re a keen homebuyer who wants to explore what options are available to you – including your borrowing capacity – get in touch today. We’d love to run through it with you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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