Credit curbs in sight as housing rebound accelerates

Property research firm CoreLogic has released its latest Hedonic Home Value Index, reporting a 0.8 per cent rise in national home values over the month of August – the first monthly rise since April 2017.

The bump in home values was driven by a 1 per cent increase in prices across Australia’s combined capital cities, slightly offset by a 0.1 decline across combined regional locations.

Sydney and Melbourne recorded home value increases for the third consecutive month in a row, with increases of 1.6 per cent and 1.4 per cent, respectively.  

Home values also increased in Canberra (0.8 per cent), Hobart (0.5 per cent) and Brisbane (0.2 per cent), while prices slipped in Darwin (1.2 per cent), Perth (0.5 per cent) and Adelaide (0.2 per cent).

Reflecting on the figures, CoreLogic’s research director, Tim Lawless, said that the overall uptick in home values has coincided with a “consistent increase” in auction clearance rates.

In the last week of August, auction clearance rates were reported at 73.6 per cent, up from 55 per cent in the same week last year.

According to Mr Lawless, the market has responded to recent developments in the political and economic landscape, which include the Reserve Bank of Australia’s (RBA) rate cuts and the Australian Prudential Regulation Authority’s changes to its lending guidance.

“It’s likely that buyer demand and confidence is responding to the positive effect of a stable federal government, as well as lower interest rates, tax cuts and a subtle easing in credit policy,” he said.

“While the ‘recovery trend’ is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities.”

Mr Lawless added that while it may be a while before home prices return to their peak, the last figures confirm anecdotal evidence of an improvement in market confidence.

Further, Mr Lawless said that the latest figures could be a sign of a sharper than expected recovery in the housing market, spurred by an improvement in the supply of credit.

“At CoreLogic, our expectation has been that this recovery would be a slow and steady one; however, with housing credit restrictions easing and mortgage rates likely to reduce further, this rebound could potentially turn into a ‘V-shaped’ recovery,” he said.

Mr Lawless noted that regulators would be monitoring trends in the property sector, adding that they may consider a fresh wave of macro-prudential measures if prices, particularly in Sydney and Melbourne, accelerate beyond expectations.  

“No doubt, policymakers and regulators will be monitoring the housing market indicators very closely over the coming months,” he said.

“At the outset, it appears that a rapid recovery would confirm that low interest rates and a loosening in credit policy is reigniting some market exuberance, despite housing affordability remaining a significant challenge, rising unemployment, low wages growth and near record-high levels of household debt.”

Mr Lawless concluded: “If the strong rises in values continue over coming months, we would not be surprised to see a new round of macro-prudential policies introduced in order to keep debt levels in check and encourage spending in other areas of the economy.”

AMP Capital chief economist Shane Oliver agreed, adding that a rapid acceleration in prices across Sydney and Melbourne could prompt the RBA to revise its monetary policy strategy.

“Much higher unemployment is something the RBA is keen to avoid. In fact, it wants unemployment to fall to 4.5 per cent or below – so our view remains for further cash rate reductions in November and February next year taking the cash rate to 0.5 per cent,” he said.

“An obvious issue though is whether the rebound in the Sydney and Melbourne property markets will present a problem for the RBA in terms of cutting interest rates further.

“This will no doubt cause some consternation at the bank.”

He continued: “But as we saw over the 2011-17 period, the RBA will do what it believes is right for the ‘average’ of Australia as opposed to one sector or a couple of cities.  

“However, it may have to return to tighter regulatory controls again if it needs to cool the Sydney and Melbourne property markets once more for financial stability reasons.

“In other words, 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, then expect a tightening of the screws again from bank regulators.”

[Related: Mortgage industry ‘as busy as ever’]