House prices made their largest monthly gain in more than four years in October, rising for the fourth consecutive month and moving national house prices 2.9 per cent up from their June floor.
The robust turnaround in house prices has been more fast-moving than expected, with Sydney prices recovering 5.3 per cent since their May 2019 trough and Melbourne prices making a larger, 6 per cent, comeback.
Corelogic’s October home value index results reveals a 1.2 per cent increase in national dwelling values over October, led by a 2 per cent gain in Melbourne—the city’s fastest pace of monthly house price growth since 2010. Prices rose in all capital cities other than Perth.
Melbourne’s inner-city apartment pipeline is currently at its lowest levels in six years.
“The number of new units coming onto the market in Melbourne is nowhere near the number of new units coming onto the market in Sydney,” AMP economist Shane Oliver said.
With building approvals still trending downwards for the short to mid-term and tight conditions on lending to developers, supply will continue to be constrained and put upward pressure on prices—at least for the short term.
But Capital Economics economist Ben Udy suspects the rapid pace of house price gains won’t be sustained.
“While the excess demand for housing will see annual price gains surge in the coming months, an increase in the supply of houses for sale should counteract that surge before long,” Udy said.
“We expect sluggish income growth and an increase in the number of houses for sale to cause house price growth to ease to around 5 per cent in 2020 and 2021.”
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^ Change in dwelling values to 31 October 2019. Source: Corelogic
October’s results show the Melbourne and Sydney-led rebound in prices has broadened to other cities, spurred on by improving credit availability and the lowest mortgage rates since the 1950s.
“Stamp duty exemptions for first home buyers have added additional stimulus to housing demand,” Corelogic research director Tim Lawless said.
“It’s becoming increasingly clear that the housing market rebound is gathering pace, both geographically and across the broad valuation cohorts, off the back of lower mortgage rates and improved access to credit.”
AMP economist Shane Oliver points out that should house prices continue to grow at the current pace and credit growth rebounds, the regulators will tighten credit availability.
Lawless agrees: “If housing credit continues what has been a fairly rapid recovery, then I think we might see the regulators starting to become a little bit more uncomfortable with the pace of recovery and step in.”