House prices surging but is it really a real estate boom?

As property prices grow at their fastest rate in three decades, taking a longer-term look puts it into perspective.

Here’s a quirky question to ask as house prices sizzle: when is a property boom not really a property boom?

The answer: when you measure price movements over several years rather than several months.

The latest CoreLogic Hedonic Home Value Index, released this month, found home values surged 2.8 per cent in March, their fastest growth rate in 32 years.

Fresh CoreLogic data released Monday shows auction numbers strengthening, clearance rates in most capital cities around 80 per cent and houses generally spending less than five weeks on the market.

All capital cities have joined the property party, and buyers everywhere are spending much more than they planned because competition for real estate is so intense.

March was a big month, but we’ll need several more like it to make this current exuberance a national boom rather than a recovery from recent weakness.

Real estate values are growing at a rapid pace.

Over the past year average capital city home prices are up 8.1 per cent – with only Hobart, Darwin and Canberra above 10 per cent.

Looking back longer, between March 2018 and March 2021 median home values in Sydney climbed a total of 5.7 per cent to $928,000, and in Melbourne they were up just 2.2 per cent to $737,000, CoreLogic figures show.

Brisbane median values rose 11 per cent $548,000, Adelaide 12 per cent to $487,000, Perth 9 per cent to $506,000 and Darwin 5 per cent to $451,000 in the three-year period – hardly boom times.

Only Hobart and Canberra have rocketed ahead, up 30 per cent to $549,000 and 23 per cent to $727,000 respectively.

If the current growth rates continue we will experience a true boom. House prices are being driven higher by record-low interest rates, government homebuyer incentives, and buyers worrying about missing out if prices climb beyond their financial reach.

Some economists predict price growth of 15-20 per cent in the next couple of years.

But remember that things can change quickly.

The end of JobKeeper wage subsidies this month and continuing COVID snap lockdowns create uncertainty, and other Federal Government schemes and stimulus are winding back or winding up.

We could also see regulatory changes – as we did a few years ago – to cool hot housing markets, and there’s a growing view that interest rates will rise sooner than the Reserve Bank’s expectation of 2024.

With home buyers borrowing big and often up to their maximum limit, and the impact of just a couple of interest rate rises may have a huge impact on demand for housing.

AMP Capital chief economist Shane Oliver says tougher lending standards may not be too far away.

The message for real estate buyers, owners and investors is clear: property should be viewed as a long-term asset rather than a way to make a quick buck.

It’s wise to keep an eye on housing market cycles as some are closer to peaks while other cities are only at the beginning of recoveries following multi-year declines.

A good way to avoid getting caught out by rapid rises or falls is to buy and sell at the same time, in the same market.

Trying to time the market is incredibly risky, especially when there’s always uncertainty around housing thanks to surprise government interventions, interest rates and pandemics.