Is Sydney in a price bubble?

Affordability-on-your-mind-Here-are-a-few-things-that-you-can-measure-it-against-_157_6010888_0_14102960_300If you’re looking to buy a house or apartment for the first time, it can be hard to ignore the almost-constant commentary on the state of house prices. But are they really as extreme as they have been made out to be? New research from CoreLogic RP suggests not. In fact, figures show that price growth is much slower than it has been in the past, which could offset a lot of the hysteria that has developed in the real estate sector.

The CoreLogic study has some interesting revelations about Australia’s current growth phase. Between the years of 2012 and 2014, the median value of a home in the Sydney alone has jumped 38.8 per cent. Further CoreLogic data shows that, over the past year to June 9 alone, they have expanded 14.35 per cent. So how does this compare to the previous housing boom of 2001 to 2004? As it turns out, the earlier period has left the most recent rate in its dust.

From 2001 to 2004, house prices rose a staggering 60.2 per cent in the New South Wales capital. What’s more, this time span saw value growth spread across all the capital cities, something that CoreLogic Senior Research Analyst Cameron Kusher said hasn’t been repeated from 2012 onwards.

“The growth post-2000 was broad-based whereas the current growth in home values has been narrow, largely focussed on Sydney and Melbourne,” Mr Kusher said in a June 1 release.

To put it in perspective, Brisbane experienced an incredible rise in values after 2001. Property values jumped 91.5 per cent, but have only increased by 10.9 since May 2012. Interestingly, the analysis shows that Hobart and Darwin are the only capital cities where the capital growth rate recently has come near the level seen post-2000.

So what does this mean for residential sales? Buyers may think that house prices are spiralling out of reach, but this is far from reality.

Households can take on more debt

Mr Kusher also raised an interesting point about property-related borrowings. He noted that the level of household debt was much lower prior to the 2001-2004 housing boom compared to now, which could be responsible for the rapid rise in values.

This has been highlighted by the Australia Bankers’ Association (ABA) in a recent report. Fuelled by low interest rates, households across the country have been taking on large quantities of debt for housing in recent times. The report shows that borrowings for real estate have increased 7.3 per cent over the year to March 2015, bringing the total level up to $1.5 trillion.

“As might be expected in a low interest rate environment, households are increasing their borrowings for housing,” ABA Executive Director – Industry Policy Tony Pearson said in a June 1 release.

However, Mr Pearson underlined that the level of growth for real estate-related debt is much lower than the level recorded prior to the global financial crisis. According to the report, the peak growth rate was 22 per cent in 2004 – putting the current figure in perspective and suggesting that heated discussion about lending could be slightly out of proportion.

Moreover, the ABA said mortgage holders are well-equipped to handle the responsibilities that come with greater borrowings. On average, households are more than two years ahead on the mortgage repayments, according to the report. This gives homeowners plenty of room to manoeuvre and provides a useful buffer, particularly if the Reserve Bank of Australia decides to review monetary policy in the future. Not only that, but it reduces the stress related with managing household finances.

For borrowers worrying about getting their first break in the property market, there is light at the end of the tunnel. If you’d like to make a move and enter the housing market, your local real estate agent can help you find a property that fits your lifestyle – and your budget.

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