Booming property market stokes household debt concerns

A ferocious boom in housing that is overwhelming banks and mortgage brokers is stoking fresh concerns about consumer debt levels, amid signs some buyers are becoming more cautious about overpaying for properties.

Banking giant ANZ this week said it was being overwhelmed with unprecedented levels of applications for home loans, as mortgage brokers said some buyers were snapping up high-priced homes at auctions before they have locked in funding.

But the chief executive of property portal REA Group Owen Wilson said the economic backdrop points to ongoing rises in housing prices for the rest of the year. “What we’re seeing is one of those rare markets where it’s a good time to sell, and it’s a good time to buy,” he said.

Rising consumer confidence and low interest rates are expected to underpin the booming real estate market this year. Credit: Peter Braig

“If you’re a buyer who’s either looking to upgrade or even enter the market, these record low interest rates create the best conditions you could ever have for borrowing money to enter the market. So you’ve got this great equilibrium in terms of buyers and sellers,” he said.

Mario Rehayem, chief executive of Pepper Money, a non-bank lender which targets customers who cannot qualify for loans from the major banks, agreed. “The outlook is extremely positive, and that’s not just my view, that’s the whole industry’s view,” he said before Pepper’s stockmarket float later this month.

IFM Investors chief economist Alex Joiner said while the surge in house prices was not yet raising financial stability worries, he was concerned about what would happen when interest rates ultimately rise.

“Basically we are capitalising structural and cyclical low interest rates into house prices, and we have done so over the last 30 years,” Dr Joiner said. “What goes up very quickly could potentially come down quite quickly once interest rates start to rise.”

The Reserve Bank has said it expects to keep the cash rate at 0.1 per cent until at least 2024. Dr Joiner said price growth would typically slow, or prices would fall, when interest rates started rising.

Dr Joiner said the boom was also inflaming housing affordability problems, and it meant the household sector would emerge from the COVID-19 recession with more debt than previously.

And Mr Wilson said caution among buyers was beginning to creep into the market. “We are starting to see a little bit of steam coming out of the market. Buyers are becoming a little bit weary of overpaying in this markets so we are starting to see a bit of a rebalance,” he said.

According to AMP Capital, the pace of home price gains is likely to slow from 15 per cent this year to 5 per cent next year and then to a likely modest fall in prices in 2023.

ANZ also this week revealed it has wound back its home loan marketing because demand was so strong. REA - majority-owned by Rupert Murdoch’s News Corporation - reported further listings growth for the quarter, albeit at a slower pace compared to the December quarter.