Sydney’s property market has recorded its largest quarterly increase in almost three decades, with the median cost of a house in the emerald city now a staggering $1.31m.
New housing data from property website Domain shows house prices surged by 10% across the capital cities in the past year, led by a staggering 19.5% increase in the nation’s capital, Canberra, and double-digit surges in Hobart, Adelaide and Sydney.
Fuelled by record-low interest rates and a surge in mortgage lending, house prices in Australia have exploded during the Covid-19 pandemic.
Sydney’s 8.5% quarterly increase is the largest since Domain began keeping records in 1993 and pushed the city’s median house price from $1.21m in December to a new record of $1.31m in March.
Other capital cities also recorded large upswings during the quarter: Melbourne saw a 4.8% increase, while Darwin was up 9.1% and Hobart climbed 7.6%. Brisbane had the slowest growth in house prices across the quarter with a 1.7% increase.
Growth was not restricted to the cities – Bulli, in Wollongong south of Sydney, recorded a massive 34.1% annual increase to take the median house price to $1.2m. In Byron Bay, on the NSW north coast, the annual change was 31.2%.
The eye-watering prices have prompted predictions that financial regulators may step in to place restrictions on lending – as happened previously when the housing market was hot.
In March, ANZ economists predicted regulators could step in by the second half of the year to curb lending in a bid to stop the market from overheating. To date though, the Reserve Bank and Australian Prudential Regulation Authority have remained on the sidelines.
The Apra chair, Wayne Byres, cautioned in March the financial regulator did not have a mandate to target house prices, or housing affordability, and there did “not seem cause for immediate alarm”.
Speaking at the 2021 AFR Banking Summit in Sydney, Byres did say however that the regulator was watching household debt levels.
“We are alert to signs that very low interest rates and rising housing prices create a dynamic in which households seek to take on even higher debt levels, and that banks searching for credit growth seek to accommodate that demand through greater risk taking,” he said.
Unlike the last major price surge in 2015, when Apra stepped in to tighten lending to investors, much of the surge in 2021 is being driven by owner-occupiers.
Domain’s senior research analyst Nicola Powell said owner-occupiers had been “the driving force behind Sydney’s swift price leap thanks to ultra-low home loan rates, government incentives and high household savings”.
“Strong buyer demand for houses means properties are not on the market long, and this has depleted overall supply to a multi-year low,” she said.
But Powell expected to see the increases ease in the coming quarter.
“The rate of quarterly growth is likely to ease because the gains we’ve seen over March are very rare for Sydney. Over 8%, that’s only happened twice before,” she said.
“What we’re likely to see is two things. One is that affordability will become an issue and that in itself will slow down demand from first home buyers saving for a deposit under rapidly rising prices.
“But as well I think you will see more new listings in the market because sellers will be lured by the record prices.”
In Canberra, a 9.7% March quarter increase saw the median house price go above $900,000 for the first time. Powell said such a significant surge in the capital was “extremely rare”.
“Another quarter at the same percentage growth rate would push house prices above $1m,” she said.
“That said, this rapid growth is likely to be the peak quarterly rate and not sustained in following quarters at such ferocity. This level of quarterly growth is normally the output of an entire year and is extremely rare for Canberra to experience in one single quarter.”
Powell said the increase was partly down to “a lack of houses for sale at a time of strong demand”. The auction clearance rate in Canberra reached 89% in March, the highest on record, and has been above 80% for the past two months in a row.
“Record-low interest rates, high household savings, low stock volumes and incentives are fuelling a strong housing market performance,” she said.
Powell said Melbourne’s median house prices would likely crack the $1m mark in the next quarter.
“Last year, Melbourne’s housing market recorded uneven price rises that were concentrated in middle and outer suburbs,” she said. “Increases are now being recorded across most of Melbourne. Of particular note, houses in the inner east are now leading quarterly growth.”
Apartment prices have not seen similar growth. During the March quarter, the median unit price in Sydney increased by 2.2%, which is up only 0.2% for the year.
In Canberra, Hobart and Brisbane unit prices actually went backwards, including by 5% in the nation’s capital. However, nationally unit prices are just above the previous peak reached in mid-2017 at $584,340.