The CBA is forecasting a surge in house prices over the next two years of up to 16 per cent, while unit price-growth will be more muted at 9 per cent.

According to the CBA, lending rates have lifted sharply, signalling a housing market on the “cusp of a boom”.

“The increase in new lending is now feeding into higher prices for bricks and mortar,” CBA economist Gareth Aird said.

“The negative impact that Covid-19 had on Australian property prices turned out to be much more muted than almost any forecaster expected, us included.

“We were earlier than most, however, to recognise this and revised our call in September 2020 to look for a smaller peak-to-trough fall and a decent lift in prices over 2021.

“But even then, the rapid growth in new lending over the second half of 2020 was stronger than we anticipated.”

In its most recent economics issues report, released today, economists at the CBA reported the boom was off the back of record low interest rates and a v-shaped labour market recovery.

Aird said record low borrowing rates remained below rental yields across most markets and it meant property markets “would need to find equilibrium” in the form of dwelling price rises.

“A critical assumption underpinning our forecasts is the cash rate remaining at its record low of 0.1 per cent, which is in line with RBA forward guidance,” Aird said.

“We do, however, factor in a modest increase in fixed rate mortgages, which will rise if the RBA removes or raises its target yield on the three-year Australian Government bond, as we expect in the second half of 2021.”

The CBA is reporting positive momentum is building within the property market and “as the market firms, would-be buyers are more confident to purchase and this brings other buyers into the market”.

The news is less positive for unit-owners. CBA is forecasting a disparity in price growth between houses and apartments.

“We forecast national house prices to rise by 16 per cent over the next two years and unit prices to rise by 9 per cent,” Aird said.

Across the suburbs, they’re lining up for home inspections. With COVID-19 restrictions, only a handful are allowed in at a time. The queues, for units in particular, stretch down the stairwells and spill outside. In some regional areas, particularly coastal locales, the situation has reached fever pitch.

Prices in some areas are up by more than a third in the space of a year as cashed-up buyers fleeing the cities head for the country with dreams of permanently working from home.

Regional prices rose 1.6 per cent in January, more than double that of the main capital cities.

Auction clearance rates are hurtling towards a perfect score in some cities.

Canberra recently clocked up clearances in excess of 90 per cent while Sydney has pushed way above 80 per cent; rates that indicate extremely tight conditions.

When Corelogic tallied the final numbers on Friday, the previous weekend’s national auction clearance rate hit a six-year high at 79.3 per cent.

The preliminary results from Saturday indicate an even stronger performance at more than 86 per cent.

A fortnight ago, Australian real estate prices lurched back into record territory — and there is no end in sight.

With interest rates locked in at a whisker above zero — and with Reserve Bank assurances they’ll stay put for the next four years — it’s little wonder buyers are scrambling for a piece of the action.

Add in the imminent removal of responsible lending laws and the stage is set for a sustained real estate boom.

Even accounting for the hyperbole usually employed by the industry, this note dropped into your diarist’s inbox over the weekend from a local agent summed it all up.

“In my 25 years of working in the industry, conditions have never been stronger.”

Nothing to see here

In ordinary circumstances, we’d be at the point where a rational Reserve Bank governor would be expressing concerns, perhaps even warning would-be home buyers that prices don’t always rise, and that caution is warranted in such a frenzied environment.

Behind the scenes, you’d expect contingency plans being formulated on how to deflate the real estate bubble without hurting the broader economy.

Not this time. Instead, our monetary mandarins are doing the opposite. They’re stepping aside, more than happy to let prices rip.

“There’s a lot of focus at the moment on the fact that housing prices are rising again, and the stock market has been strong,” RBA Governor Philip Lowe said recently.

“Well, the national house price index today is where it was four years ago … and the equity market, we’re back to where we were at the beginning of last year.”

He’s absolutely correct, of course.

Statistically, you could argue prices have barely moved in years.

The only problem with that line of logic is that it ignores what has taken place in the meantime.

Like, four years ago when the RBA, in a desperate bid to curb a runaway housing market, urged the banking regulator APRA to clamp down on interest-only loans, the preferred financing for investors.

It successfully muscled values lower and maintained the pressure.

Clearly, it was worried about a real estate bubble then.

Here we are again, and the most extraordinary thing is that we’ve just emerged from the deepest recession in almost a century with an uncomfortably high unemployment rate, oodles of spare capacity, inflation dragging along in the basement and wages growth at as slow a pace as it’s ever been.

How the RBA learned to love bubbles

Once upon a time, it was a central banker’s role to rain on the parade.

Or as William McChesney Martin, head of the US Federal Reserve in 1955, explained, to “order the removal of the punchbowl just as the party was really warming up.”

The idea was to look ahead, to take preventative action and keep things on an even keel.

So what’s changed?

For a start, there’s the fragile state of the global economy.

Then there are the concerns the Federal Government is about to rip away the budgetary support for the jobless and those left vulnerable from the impact of the pandemic on vital industries like tourism.

If the Government does reduce support, that will put a greater burden on the Reserve Bank to boost growth.

And so, with conventional weaponry almost exhausted and no real appetite to push interest rates into negative territory, our economic masters have latched on to a philosophy that’s been floating around for quite a while.

It’s called the Wealth Effect and it goes like this.

If housing prices inflate and the stock market keeps rising, people will feel wealthier and they’ll start to spend.

That, in turn, will boost earnings, investment, profits and lead to higher inflation and wages.

Rate cuts were supposed to do exactly that but didn’t.

In fact, all they’ve really done is boost asset prices. And now it’s hoped, soaring asset prices will do the job.

Of course, the biggest problem with soaring real estate prices and stock markets is that they drive a mighty wedge between rich and poor.

Those with assets end up sitting pretty. Those without end up being left further behind.

Stronger for longer

There’s an old saying among investors: markets can remain irrational for far longer than you can stay solvent.

So, as irrational as the recent booms have been, there’s every indication they will go on for far longer than is healthy.

Central banks, including our own Reserve Bank, have decided that instead of taking preventative action, from removing the punchbowl, they’ll let the party go on.

It is a dangerous game, and one that can backfire.

For the “Negative Wealth Effect” — the impact on spending when financial or property markets tank — can damage growth.

Ever since the financial crisis, central banks globally have been captured by their own actions.

They’ll do almost anything to ensure markets remain buoyant regardless of the longer-term consequences.

To be fair, the RBA reckons real estate prices will have to start moderating soon for two key reasons.

One is that for the past year, we’ve had no immigration which should have reduced demand for housing.

And the second is that a large number of newly constructed properties have yet to come on the market.

But if prices continue their stratospheric rise unchecked, it may be forced to look across The Ditch for inspiration.

The Reserve Bank of New Zealand has just raised the lending hurdles for investors after real estate surged more than 17 per cent in the past year.

So far, there’s no indication of anything like that here.

The housing market has shown a robust performance, despite the shock of Covid-19 which has created new opportunities for buyers.

The pandemic has impacted pockets of the housing market, where median values have dropped below the first home loan deposit scheme thresholds.

Recent housing value declines are particularly prominent in major cities like Sydney and Melbourne.

These cities accounted for around 75 per cent of international migration across the capital cities in 2018-19, meaning international border closures have created a particular demand shock.

On Wednesday, the minister for housing announced around 1,800 places would be re-issued from the first round of the first home loan deposit scheme.

This means recent value falls may have created an opportunity for first home buyers, where there is a maximum purchase price cap to qualify for the scheme.

As of January 2020, there was an average of 1071 suburbs observed in the capital cities with a median value at or below the qualifying threshold, assuming the application is for established property.

Established property has historically been favoured by first home buyers where benefits for both new and established property have been available.

That was further demonstrated in the slower utilisation of the scheme when it was made available for only new property.

Corelogic median dwelling value data reveals city suburbs where the median value fell below the established property price threshold since the onset of Covid.

This effectively looks at the change in the median value of all houses or units across a suburb between March 2020 and January 2021.

Note suburbs analysed include where Corelogic has high confidence in the median value, and there have been at least 50 transactions across the suburb over the past 12 months.

The list comprises 23 suburbs across the four largest capital cities.

In each of the suburbs, it is unit medians that have slipped below the threshold.

Unsurprisingly, six of these include unit values in the Melbourne–inner region, where median values have declined an average – $33,313 between the onset of the pandemic and January.

As noted in previous research, the inner region of Melbourne has seen particularly severe declines in rent and property values since the onset of the pandemic.

This is because the Melbourne-inner region has historically had particularly high exposure to housing demand from overseas migrants, such as international students, as well as people employed in tourism, hospitality and the arts.

Both cohorts have been particularly affected by the pandemic.

The same trends may explain the decline of median unit values in South Brisbane, where inner city Brisbane has also seen relatively high levels of overseas migration as a component of population growth.

While the impacts of Covid on some markets has seen a decline in values, upward pressure on prices may result from the resumption of interstate and international travel, as well as continued improvements in the Australian economy.

As more of the housing market is caught in a broad-based upswing, first home buyers could face more challenges getting into the market in the year ahead.

Approvals to build new houses continue to run at two-decade highs, up 55.6 per cent over the year.

Spurred by the cheapest money on record and generous government incentives, applications for new detached houses rose at their fastest pace in almost 20 years—since April 2001—to reach their highest-ever monthly total of 13,785, according to seasonally adjusted figures from the Australian Bureau of Statistics.

The slump in construction activity, which saw the AiGroup Performance of Construction index contract for 25 successive months, has rebounded since October to now be at a hit a 3.5-year high.

The value of total building approved rose 4.9 per cent in December, while the value of non-residential building rose 10.1 per cent, having fallen 27.7 per cent in November.

The total number of new dwellings approved, including detached homes and apartments, lifted by 10.9 per cent to 19,537 while attached dwelling approvals—apartments, townhouses and semi-detached homes—rose 2.5 per cent, largely reversing the losses a month earlier, to a monthly total of 5,752.

Private sector dwellings excluding houses dropped by 19.3 per cent, down to 5,625 units approved.

Approvals for alterations and additions also lifted by 8.1 per cent in December to sit 37.1 per cent higher over the year.

“Despite the uncertainty experienced by developers and households during 2020, the total number of dwellings approved in the calendar year was 4.8 per cent higher than in 2019,” ABS director of construction statistics Daniel Rossi said.

“Private house approvals were strong across the country, with Victoria, South Australia and Western Australia hitting record highs in seasonally adjusted terms.”

New South Wales recorded its highest private house approval figure since March 2000 with Queensland similarly recording its highest result over December since September 1994.

Queensland’s unit approvals surged by 24 per cent over the month, to be up 83 per cent year on year, with house approvals climbing by 7.3 per cent.

South Australia is also recorded its highest rate of growth for new houses since 2010, up 33.6 per cent.

Tasmania witnessed a 66.5 per cent lift in dwelling approvals across the month, with 463 approvals representing the highest number recorded in a month since the series began in 1983.

The value of total building approved across December also rose by 4.9 per cent, while the value of non-residential building rose 10.1 per cent, having fallen 27.7 per cent in November.

It coincides with the surge in borrowing for housing construction which is currently 75 per cent higher than July.

The total value of new loan commitments for housing hit $24 billion in November, a rise of 5.6 per cent on October and 23.7 per cent higher than the same month a year earlier.

Minister for Housing Michael Sukkar said the highly successful HomeBuilder scheme had now generated upwards of $18 billion of residential construction projects since its inception.

“Every additional building approval and every addition home sale means more work for our tradies and activity in our economy at a time it needs it most.

“The extension of HomeBuilder also ensures there will be a steady pipeline of construction activity through to 2022 to lock in this momentum for the construction sector,” Sukkar said.

In the four months leading into December, there were 26,300 applications for the $25,000 federal HomeBuilder grant for new builds, which has been extended until March at a reduced level of $15,000.

There were also 6,200 applications for the grant for “substantial” renovations.

Amid a much better than anticipated recovery from the Covid-19 recession, economists said the signs were good that approvals would continue to climb in the months ahead.

“Record lending for the construction of dwellings in December and building incentives—including the HomeBuilder extension and first home owner building grants—will fuel further strength in building approvals,” ANZ economist Adelaide Timbrell said.

“The key downside risk for 2021 approvals growth is Australia’s ongoing closed international borders, which will slow demand for housing from immigration and temporary international student and worker populations.”

Australian house prices hit record highs along the east coast, marking the steepest increase in four years and rounding out a year of unprecedented events and price predictions.

The median house value now sits at $852,940, up 4.1 per cent over the quarter and 5.8 per cent in the year according to Domain’s house price report.

Sydney, Hobart and Melbourne led the charge in the quarterly results while Brisbane made a modest improvement but was up 5.6 per cent in the year.

Meanwhile unit prices rose marginally over the quarter—with only Melbourne and Canberra seeing significant growth—but could hit new highs in the coming months according to Domain analysts.

This is a far cry from early pandemic predictions including a 7 to 15 per cent fall predicted by the Reserve Bank in the first half of 2020.

House prices across all capital cities are now at new peaks, apart from Darwin and Perth.

Domain senior research analyst Nicola Powell said the pessimistic outlook for property prices failed to materialise.

“House prices [in Sydney] finished the year 6.7 per cent higher than the previous year, although the pace of annual growth is roughly half that of earlier in the year,” Powell said.

“The rebound highlights the resilience of Sydney’s house values following a short-lived 2.2 per cent dip mid-year.

Powell said record low interest rates, the containment of Covid and stimulus packages all played a role in supporting market activity and prices.

The report also shows outer-city regions across the country saw record price growth as demand rose throughout the pandemic.

The Blue Mountains and Central Coast in NSW, the Mornington Peninsula in Victoria and Queensland’s Gold Coast and Sunshine Coast all recorded strong house price growth between December 2019 to December 2020.

The HomeBuilder grant scheme is twice as popular as anticipated and is set to cost the government an expected $2 billion.

The original estimate for the scheme was $680 million for 27,000 grants when the prime minister first announced the initiative in June.

The latest figures released from the federal government shows nearly 75,000 households have taken up the offer for the $25,000 grant before 31 December.

Although the cash grant wound down to $15,000, the grant will continue to 31 March with the construction commencement date extended to six months, continuing to boost the residential sector.

The treasury estimates HomeBuilder will now support up to $18 billion residential projects supporting construction into 2022.

Minister for housing Michael Sukkar said they were pleasantly surprised with the results of the demand driven program .

“HomeBuilder was designed immediately to inject confidence and encourage buyers back into the market to offset the devastating effects of the pandemic on the residential construction industry,” Sukkar said.

“On all counts HomeBuilder has more than achieved this objective, and it has kept hundreds of thousands of tradies in work who would have otherwise been facing the unemployment queue.

“This is a phenomenal outcome for our tradies and for our economy at a time it needs it most.”

However the grant scheme and low interest rates have brought forward buyers leading the Reserve Bank analysts to predict home prices could increase by 30 percent.

New home sales nearly double

New home sales have jumped to the highest point in 20 years according to the latest HIA report.

Across the country, new home sales in the December quarter were higher in all regions when compared with the same period in 2019.

South Australia was up 188.3 per cent, Victoria 103.1 per cent, Queensland 99.9 per cent, Western Australia 99.2 per cent and New South Wales up 61.7 per cent.

HIA economist Angela Lillicrap said this is the second strongest month of New Home Sales in the 20 year history of the survey, only exceeded by March 2001.

“The extension of the timeframe to commence building from three months to six, which was announced in November, played a significant role in December’s results,” Lillicrap said.

“New home sales in 2020 increased by 32.5 per cent compared to 2019.

“This is an exceptional result given the nature of the pandemic and the effect that it has had on the broader economy.”

So far global house prices have defied the pandemic however the likelihood of a house price bubble and its risk of bursting is yet to be seen.

New home sales in 2020 increased by 32.5 per cent compared to 2019.

“This is an exceptional result given the nature of the pandemic and the effect that it has had on the broader economy.”

So far global house prices have defied the pandemic however the likelihood of a house price bubble and its risk of bursting is yet to be seen.

[vc_row][vc_column][vc_column_text]Our facility has been designed to meet the changing environment confronting the building industry in 2020. It enables home buyers to maximise their opportunities by bringing forward applicable Federal and State based Grants into lending policy in an ‘above the line’ transaction which allows lenders to minimise risks while providing reliable and ongoing funding for construction purposes in the First Home Buyer market.
It is a specialised program made available by the Funder to selected and approved builder relationships. The product combines a first mortgage of up to 80% LVR with a second mortgage of up to 15%. *The Lender Protection Fee of 3.50% replaces traditional Lenders Mortgage Insurance and is paid by the Builder directly to the Lender to access this specialised funding line.[/vc_column_text][vc_empty_space alter_height=”medium” hide_on_mobile=””][/vc_column][/vc_row][vc_row][vc_column width=”1/2″][vc_column_text]Only $5000 genuine savings are required.

• Grant can be used as balance of 5% deposit.
• Gifts can be used as balance of 5% deposit.
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• Up to 95% LVR.
• Choice of valuers

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