Housing Demand Increases but Prices Have Yet to Peak

September 9th, 2013

Thanks to low interest rates, housing demand in Australia is increasing, but prices have yet to reach their peak.

In 2001, the RBA cut interest rates and house prices skyrocketed, making housing unaffordable. Even with lower interest rates today and high auction clearance rates, there’s still no peak in prices.

House prices have increased by 5.3% nationally, while the growth rate for property prices in Sydney and Perth is higher than the national rate. However, the rates remain lower than a decade ago. The current median house price is $600,000 for most states.

After the rate cuts, the number of home loans taken out has grown, and their value was lower in 2011 compared to 2001. The reason is that the First Home Buyers Grant was doubled to $14,000 in 2001, which led to the price boom. According to some analysts, prices will peak in the near future.

The RBA also cut rates to boost the construction industry, but the improvement isn’t much compared to 10 years ago. This is because investors, not homeowners, are the ones financing homes, and 95% of the houses they buy are existing properties.

Furthermore, household debt increased to 133%, while low interest rates decreased the amount of disposable income used to pay off interest payments. However, since the national average income has increased and house prices remain steady, housing is more affordable, even if homes remain 30% less affordable than before the 2001 price boom.

Source: http://www.theguardian.com/business/grogonomics/2013/aug/19/house-demand-prices-rocketed