House prices in biggest surge since May 2015

Australian house prices have recorded the biggest month-on-month gain since May 2015.

Auctioneer Michael Carolan in action. Picture: Chris Pavlich

Property prices have recorded the biggest month-on-month gain since May 2015, putting the market on course to reverse the losses of the past two years by early next year.

CoreLogic’s national index data shows Melbourne is leading the east coast price resurgence, with an increase of 2.3 per cent in October the city’s largest since November 2009. The rise puts the Victorian capital ahead 5.5 per cent for the quarter, outpacing Sydney, which grew by 1.7 per cent in October and 5 per cent over the past three months.

The national increase of 1.2 per cent in October was the largest month-on-month rise since before the last peak.

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October marked the third time in five months that the the Reserve Bank cut the cash rate, for the third time this year to a historic low of 0.75 per cent. Low mortgage interest rates combined with improved access to credit, strong population growth and tight labour market conditions has helped to drive demand.

Stronger economic conditions are also influencing the smaller capitals. Brisbane prices were up 0.8 per cent through October, while Adelaide (up 0.4 per cent) and Canberra (up 0.6 per cent) and Darwin (up 0.3 per cent) each reported gains.

Perth was the only capital to see price falls last month (0.4 per cent), however, Mr Lawless noted the slowing rate of decline was a positive sign for the western capital.

Both major capitals are now close to breaking even for annual price growth, a stark turn around from this time last year. Melbourne prices are currently sitting 5.8 per cent below peak, while Sydney is 10.4 per cent lower.

Should the recovery continue at this rate, CoreLogic’s head of research Tim Lawless said there was a real possibility property prices may reach 2017 levels again by early next year.

“If you look at the national market, it is still down 5.7 per cent,” Mr Lawless said. “Looking at the current month-on-month rate of 1.2 per cent, it (2017 prices) is really only about five months away.

“When we talk about sustainability of prices rises, anything beyond wages over the long term would be unsustainable.”

“I’d be surprised if we would see the market maintain this pace of capital gains, simply because household debt is higher, regulators and policymakers are probably at the moment relatively comfortable in the fact that the housing market is stabilised and starting to recover.”

Ray White chairman Brian White told The Australian October sales figures were up 20 per cent on last year to $4.5 billion.

“There is enormous confidence in the market. We are seeing a really strong aspirational element to people wanting to buy and sell,” Mr White said

Shane Oliver, AMP Capital’s chief economist, said the sharp market cycle will put pressure on monetary regulators.

“The big issue is whether the rebound in the Sydney and Melbourne property markets will present a problem for the RBA in terms of further easing whether by rate cuts, quantitative easing or both,” Mr Oliver said.

“We don’t see the rebound in the Sydney and Melbourne property markets as a barrier to further monetary easing, but if it continues to gather pace leading to a rebound in credit growth to levels that cause the RBA to worry about financial stability then expect a new tightening of the screws from bank regulators. With housing credit currently benign at 3.1 per cent year on year, any such tightening looks at least six months away.”

First home buyers are becoming increasingly active in the market as they take advantage of cheap money, relative affordability and state government schemes. Demand is likely to push higher in the new year after the federal government firmed up its provisions around the first homebuyer deposit scheme, which will be available to 10,000 market entrants from January 1.

Mr Lawless said that if credit growth continued to rise rapidly, regulators might step in.