No curfew on house-price party

The boom in house prices is patently absurd and can’t continue at its present rate of growth. Yet that doesn’t mean a crash is on the horizon, no matter how hard GenRent wishes for a reset of the ground rules.

The only way is up, baby, at least until our relaxed regulators judge lending standards have slipped and stability is at risk.

The drivers of the red-hot property market are obvious.

Money is cheap and there’s plenty of it, given the Reserve Bank’s near-zero cash rate and crisis funding facility for lenders.

Australia is sprinting out of recession, as shown by robust consumer spending and a 5.8 per cent jobless rate.

Treasury and Reserve Bank experts have been surprised by the potency of recovery. Even the end of JobKeeper this week is unlikely to upset the revival.

Then there’s the pandemic cash accumulated by households, who weren’t able to holiday overseas or spend it on restaurant meals and tickets to gigs. There’s $120bn of excess savings that will be spent this year and next, or used to pay down debt.

Governments have done their bit to pump up property with assistance to renovators, first-home buyers and the building industry.

Economists at the Commonwealth Bank, the nation’s biggest housing lender, expect dwelling price rises to continue.

“Borrowing rates, which are the single biggest driver of prices in the short run, remain below the rental yield in most markets across Australia,” CBA economists noted on Thursday.

“This is an unusual situation and means that property markets across the country are searching for an equilibrium. For the bulk of Australia, equilibrium will be achieved via further dwelling price rises.”

CBA tips home prices will rise 14 per cent by the end of 2022.

Until recently, investors have been on the sidelines, giving first-home buyers a shot. That dynamic is changing, with auction clearance rates settling at above 80 per cent in several capitals.

Working against the up escalator on home prices is zero population growth. The halt in migration, including foreign students, has led to big discounts in inner-city rents and weak demand for apartments.

As well, some of the new housing supply spurred on by subsidies has yet to hit the market.

The National Housing Finance and Investment Corporation says new supply is expected to exceed new demand by 127,000 dwellings this year, and 68,000 dwellings next year.

Still, ultra-low interest rates are here for three years according to RBA governor Philip Lowe, and asset prices are on the march.

Lowe maintains the central bank doesn’t target house prices but has warned financiers if they cut standards, regulators will step in with “macroprudential” sticks, as they did in 2015 to curb investor debt. In 2017, they tightened the screws on interest-only loans.

But there’s no rush to stop the house-price party. Even at these ridiculous growth rates, home prices are only 4 per cent above their peak in September 2017.