Australian house prices surge out of control

The Australian Bureau of Statistics has released their quarterly update to its House Price Index today, showing Australian houses surged an unsustainable 20.0 percent across the eight capital cities in the year to March. This was the largest yearly increase since this index was first created.

Melbourne lead the race to exuberance with a 27.7 percent gain for the year, followed by Sydney with a 21 percent gain. Foreigners such as Chinese and Koreans prefer the high rise atmosphere these two cities provide. But even cities without high rise Chinese demand had spectacular gains, with Adelaide lagging the back of the pack and just scraping in double digit rises of 10.8 percent.

The Reserve Bank of Australia meets tomorrow, and is almost certain to act on this news, raising the Official Cash Rate.

» 6416.0 – House Price Indexes: Eight Capital Cities, Mar 2010 – The Australian Bureau of Statistics, 3rd May 2010.




22 Comments

  1. The Australian government intervention in 2008 and 2009 has created an even bigger problem now than what existed when the GFC started in 2007. Don’t stand too close when this thing eventually goes bang or you’ll egt hurt.

  2. When this one go’s POP its going to be the worst crash Australia has had in history! Because we have all become so greedy I think we deserve it!

  3. It won’t happen. We have low unemployment, high migration and an undersupply of housing.

  4. I just went to get my morning coffee and picked up the Herald Sun (admittedly not the best journalism) and on the front page is an article about the increase in house prices. The example shown, 1996 house in Richmond, Victoria was $260K, in 2006, $530k and in 2010, a whopping asking price of $1M. Housing prices are insane, not to mention Stamp Duty!

  5. Much of the recent surge in the index could be due to first home buyers leaving the market. If fewer low value homes sell it drastically changes the median, even if the same home would have sold for a lower price over the period. We’ll have to wait and see if this is revised/smoothed in the next ABS release. The RPdata-Rismark hedonic index was more less volatile http://www.businessspectator.com.au/bs.nsf/Article/House-prices-pd20100503-545SC?OpenDocument

  6. I had to have a chuckle today at a 26 year old woman I work with when she couldn’t believe interest rates can keep going up.

    Quote “Me and my partner stretched ourselves to buy our dream townhouse in Glen Iris late last year, and the repayments have now gone up $500 a month, they can’t keep putting these rates up. We have had to cut back a lot on other things already!”…

    Unfortunately even the seemingly educated have been suckered in – and it’s going to end in tears.

  7. Why does this article mention ‘Korean’ ? I’m wondered whether author have any fact or real data for this Korean?
    Don’t mix Chinese and Korean. We are not that greedy .

  8. I still can’t see a correction happening anytime soon. Sure some people will have to sell, but there seems to be an endless supply of eager investors ready to purchase properties and then rent to a tight rental market which in turn is supported by low unemployment and high immigration.

    Sorry, but it just won’t happen.

  9. @AverageBlok- Your just an average spruiker! Knowledge is a beautiful thing and i guess you just don’t have any! Hope you enjoyed the interest rise today!

    @Everyone else- I agree with all of you, GREED is bad!, House PRICES will CRASH!, BUBBLE will POP! and it will all end in TEARS!

    PEACE!

  10. Hi, I used to think Housing Properties would correct a few yrs ago before I understood the other factors that cause infalted house prices. These are -:

    1. Government interference in the property market via FHOG.

    2. Government intereference in the property market via increased unplanned immigration.

    3. Government intereference in the property market via Negative Gearing tax subsidies to Property Investors.

    4. Government intereference in the property market via relexed foreign investment rules.

    5. The inability of encumbant governments to change anything that might stop skyrocketing house prices for fear of voter backlash.

    Back to your personal assumptions about me.

    I like many others thought that logically, unsustainable house prices would eventually correct. Therefore I kept saving for a deposit for a modest home. Everytime I thought I had saved enough the house prices would LEAP up literally obliderating any chance I had of being able to service the loan on the amounts I would need to borrow. Home prices at record levels had many people (mainly investors) ready to offer more than I could afford. This has happend time and again since 2002. By about 2004 there was no way I could afford anything even at the bottom of the market, so I just kept saving.
    Meanwhile I know of property investors whom are buying their 4th or 5th home fuelled by rapidly rising equity, good rental returns from the tight market and a Negatively Geared tax windfall paid for with our tax dollars.

    After a few yrs of this rollercoaster I like you thought this madness has to end. But it has proven me and many other more qualified people wrong, time and time again.

    There will be no crash, things may slow down for a little while but no long enough for the average person to be able to save enough for a deposit big enough to offset the costs of servicing such a large loan many times the average persons yearly income.

  11. Who cares if it doesn’t pop? I’m getting nice interest again. LOL.

    Of course it will pop. I generally have empathy for people, BUT as above, it is greed. I will seriously laugh so hard as I pick up housing at sane levels while others become bankrupt and then rent off me.

    If it’s hard for them now, wait ’til I’m their landlord. 🙂

  12. @AverageBloke- You just stated the factors why the bubble didn’t burst during the GFC! If the government didn’t intervene, then the bubble would POP already, but they only made the bubble bigger! Can’t you see that? (by the way, i think there is going to be a backlash to K. Rudd, recent poll suggest they will lose the next election-too many mistakes and blunders).

    With everything that is happening right now with our economy and rate rises and as most economist and media saying that around 40% of FHOB is now in mortgage stress. WHO IN THEIR RIGHT MIND WOULD BUY A HOUSE RIGHT NOW?

    It is all about timing and most would agree with me that now is not the best time to be in the housing property. Unfortunately i am going to be PATIENT and i will be one of the people who is going to buy your house when you are FORCED to sell!!!!!

    I’m with Matty, i am getting nice interest and i don’t have MORTGAGE STRESS. I have money to enjoy life and have already booked my flights to NZ this July and also to the USA in November for a holiday! They say we only live once! So why not enjoy it and not work my ass off for 30 years of mortgage slavery!

  13. To all the people screaming greedy:

    I don’t think all the 1st home buyers are greedy. Many are fearful of losing the chance of having a home, be forced to rent forever and hence rushed to buy with the FHOG as a booster/incentive. People who are under mortgage stress are not solely investors who have over-invested in properties. They comprise of also families who bought a home and had thought they could sustain the repayments, who may have had other financial mishaps (say, losing their job) and can not repay their loans. Where is the greed in that? Should we not be more sympathetic to them? Any investor who fall into your description of greed is not a very good investor if they drop dead when the banks hike a few 25 basis points. Do you seriously think the filthy rich investors care that the rates are going up? This only means common families (as depicted above) will be forced to sell and they will be waiting to grab a bargain.

    To all the people praying for a burst and damning the unfortunate:

    Aren’t you all culprits of greedy for a bargain, such as the people you are cursing? Is it not greedy that you are preying on another person’s potential loss?

    Personally, I bought my home a few years back when the rates were almost 10 %. It was tough so when the rates went down it was a big relief and I used that chance to make purchases that I would not have had the capability at its high. Surely I do not fit the bill of greedy for buying my own home. Now that the rates are going up again, it means I have to tighten some expenses, which is not easy. Yes, there are some mortgage stresses involved. Yes, there is no chance of me going to NZ and USA this July. Yes, I am tunneling most of my wage into the bank for the next 30 years. But NO, it is not greed.

  14. I am a ‘first time home buyer’ who has been saving for a deposit for over 5 years now.
    Unfortunately due to the GFC the banks want 20% deposit on say a $500k home / unit in order to not pay insurance to the bank. Not many people have $100k lying around, so I can’t see how people are meant to buy their first property without stretching themselves to huge debt. I personally will not be taking on a loan 7 times my salary.
    Property auctions are not a good means of valuing property and people are paying inflated amounts for the asset.
    With first time home buyers priced out of the market, overseas property investors slowed down due to changes in the law and rising interest rates for the baby boomers accumulating their low rental yield assets, it seems strange that people think demand will be staying the same. Everyone just talks about the low supply of housing.

    You think we all would have learnt our lesson from the GFC about debt!

  15. Hi again T,

    Buddy did you actually read what I wrote?

    I thought I explained quite clearly that I DONT OWN PROPERTY due to high prices. All I own is my savings and a feeling of hopelessness. So I dont know how you are going to buy my home when I dont own one!?

    Also if you think a change of Government will reverse the FHOG’s and negative gearing you are sadly mistaken.

    I stand by my statement that there will be no correction. Prices may stay at present levels for a few yrs maybe even drop 5% but they will never return to an affordable level.

    Therefore you and I will still be in the same boat. So go and enjoy your holiday!

  16. Eleven, I dont know what planet you are living on but if you dont think your fellow humans with the I want it now not later attitued, living in massive homes with new plasma tv’s and big new cars all thanks to debt is not the perfect example of just how greedy we are, I am sorry but you need to take a look at how a large part of the rest of the worlds population live! get real! We are greedy by nature just some more so than others.

  17. I’m so sick of people saying there is a “Housing Shortage”. What an amazing coincedence that as soon as house prices start skyrocketing there is suddenly a shortage! Not to mention this so called shortage happened in the space of a couple of years. There is not shortage, there is an affordability issue. All of this media hype is generated by developers who are shitting themselves because they have so much debt and people can’t afford to buy their properties. Look how many brand new blocks of flats there are around Sydney which are sitting empty.

    Now on buying a property:
    Buying a house (on margin) is the most RIDICULOUS thing you could do. Add up all the repairs, stamp duty, taxes, interest, bank fees and other hidden costs. Why would you want the liability? Simply rent property; it works out far cheaper in the long run. To anybody who bought property in the last 4 years, heaven help you. I wouldn’t be surprised if at least one major bank failed in the next 1-2 years. I shudder to think how many bad loans they have on their books.

  18. 2bob, I agree with your example that it is greedy to live in massive homes and bathe in luxuries. It is ridiculous to disagree to that. To rephrase my previous comment, it is NOT necessarily greedy to own a home. Not everyone buying a home is buying a castle.

  19. Eleven, I take your point. Maybe I am too harsh, but I do think we are all starting to take too much for granted and yes I guess that forces the average person to get sucked into the whole mess due to the fear of getting left behind! Trouble is that when it all hits the wall and go’s POP it will be average joe that gets crunched the most.

  20. Will it or won’t it burst? Both sides seem plausible. At least we’re not child soldiers!

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