Worried about accommodation? Here are three reasons the boom won’t last

Here’s an Easter gift for you: You’ve gotten a lot richer lately.

As long as you own a home.

For everyone else, the gap between the haves and have-nots is widening rapidly as the real estate market becomes “hot” after three years of slump.

Sydney home prices jumped 3.7% in March, leading the fastest rise in national home values ​​in a generation, according to CoreLogic data released Thursday.

Some economists predict that house prices in capital cities will rise 10 to 20 percent over the next two years, with interest rates remaining at historically low levels.

But regulators tasked with controlling the housing market remain unfazed, downplaying growing speculation on additional rules to reduce risky loans over the past week.

To understand why, we need to look at who is buying all of these properties and how much banks are lending to buyers in general and investors in particular.

Here are three reasons why the current boom will not last.

1. The real estate boom is a story of “catching up”

The first thing to recognize, said housing economist Andrew Wilson The new daily, While house prices are rising at a rapid rate, in many suburbs they are still below their recent highs.

In fact, the national median has only increased 3.8% since September 2017, which actually equates to a slight drop if you factor in inflation.

And although the value of new home loans to investors rose by $ 6.9 billion in February, according to ABS data released on Thursday, it remained well below the peak of $ 10 billion reached five years ago.

“We don’t see the investor epidemic that we saw in 2015,” said Dr Wilson The new daily.

“It’s a catch-up market. He will run out of steam… The March quarter will be the peak.

While prices are likely to continue to rise, borrowing capacity will be constrained by rising prices and declining government stimulus measures.

And interest rates are unlikely to fall further.

2. Homeowners are the engine of the boom – not investors

Another reason the boom is unlikely to last is that it is led by owner-occupiers rather than investors.

Dr Wilson said this means that at some point housing will become so expensive that only a small group of Australians will be able to afford it.

Notably because house prices are rising much faster than wages and workers are unlikely to get a decent pay rise until unemployment drops significantly.

“There is no prospect of lower interest rates, so [price] growth will gradually decline as house prices reduce affordability, ”said Dr Wilson.

In fact, loan growth started to slow in February. Although the value of new homeowner loans increased 55.2% year on year, it declined 1.8% during the month.

And loans to first-time homebuyers also fell, falling 4% in February, as the federal government’s homebuilder and first-time homebuyers subsidy programs began to wind down.

Financial regulators are monitoring these levels more closely than price growth, as household debt can pose a risk to financial stability.

And because we don’t see the kind of investor-led speculative loans who prompted the introduction of speed limits in 2015, APRA President Wayne Byres says he is unfazed for the time being.

“There doesn’t seem to be any reason to be alarmed immediately,” he said in a speech earlier this week.

3. There are still obstacles for investors

Mr. Byres will be watching closely the number of investors rushing into the market in search of higher returns.

New loan commitments to investors rose 4.5% in February, mostly offsetting the decline in total loans, a sign that demand from non-occupiers is picking up.

But Dr Wilson doesn’t expect Australia to return to levels of real estate speculation last seen in 2015, as several brakes on subprime lending remain in place.

“We still have significant barriers for investors to obtain funding,” said Dr. Wilson.

“There is a kind of culture in bank lending that is low risk compared to lending to investors.”

This means that prices are expected to increase much more slowly over the next six months.

“First-time homebuyers are looking at a 10 percent premium for trying to enter the market in 12 months,” Dr. Wilson said.

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