Can Australian property prices keep going up?

An auction in Kyogle Street, Maroubra in Sydney on the weekend. Picture: Dylan Coker

House prices across the nation have just recorded their biggest monthly jump in 17 years and just about every analyst in the market says prices will move higher.

Can it all keep going? The short answer is yes.

The factors driving prices ­higher — low rates and a post-­pandemic rebound — are not going to change anytime soon.

Among those forecasting that prices will be higher are the major banks, which have an inside track on lending patterns.

No surprise then that we have just found out new home lending is surging — it rose by 44 per cent in January compared to a year earlier.

The banks now expect property prices will rise about 16 per cent over the next two years and though banks may not always get their forecast numbers correct, history suggests they do at least get the direction right.

Pushing prices higher are lower mortgage rates, a sluggish supply of properties for sale (that’s why clearance rates are very high just now) and a tax system that bends over backwards to protect the family home.

Perhaps more important than those perennial factors are two new developments; first, the post-crisis rush for defensive assets such as property that we saw last in the wake of the GFC when ­prices fell 7 per cent between 2008 and 2009.

Second, we have a burst of pent-up demand following a very rare “double dip” in residential property where prices fell by 3 per cent in 2015 and then fell hard — by almost 15 per cent in total — ­between 2017 and 2019.

Yet every spell of surging residential prices is different. This time, there are lingering doubts on the overhang that the absence of immigration may create.

Economists such as Martin North at Digital Finance Analytics remain concerned how the market will handle the absence of immigration in the months ahead.

Shane Oliver at AMP says a wider fear of missing out has helped to “swamp the negative impact of higher unemployment and a collapse in migration”.

Tim Lawless, research director at CoreLogic, says a 2.1 per cent month-on-month jump in house prices in February is the most significant we have seen in more than a decade because it was registered in virtually every corner of the market.

In turn, this means that Melbourne and Sydney, which have lagged the rest of the country, should now come to the party: “At this current rate of appreciation, it won’t be long before Australia’s two most expensive capital city markets are moving through new record highs,” says Lawless.

Which brings us to the other issue with the latest property rebound: it’s coming off a high base.

The multiple of household ­income that must be spent to buy a house is now about 5.9 times, ­compared with the United Kingdom, where it is 4.5 times, or the US, where it is 3.6 times. Of course, averages conceal ­serious variations: the rebound to date (over the past three months) has been all about houses, not apartments — the price lifts in houses are 4.4 per cent while units are just 1.4 per cent.

There is also a continued strong showing from regional centres, which are playing catch-up with the big cities — whether this trend will continue is anyone’s guess.

The variations are at the most extreme in Sydney, where the ­median price is $895,933, well ahead of all rivals; Melbourne is $717,767 and Canberra $706,454.

Meanwhile, far flung regional areas will always have the lowest prices in the land.

Moreover, it is high-end expensive suburbs that are going to lift again as the latest figures show that it’s not just houses but “upper quartile” houses that are driving that latest phase of the upswing.

While few doubt this house price lift has further to go, there are plenty willing to cast doubts on a longer term uplift that could match the periods when agents could tell you “property doubles every 10 years”.