The jury is still out on housing prices

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A recent auction in South Australia (screenshot via YouTube).

Tarric Brooker investigates whether house prices are really increasing.

IN THE MONTHS since May’s Federal Election, all eyes have once again turned to the property market, as a combination of factors seemingly combined to create yet another price boom in the Sydney and Melbourne housing markets.

The shock re-election of the Morrison Government in May brought the threat to the existence of negative gearing and the capital gains tax discount to an end. As a result, the CoreLogic daily housing price index began to climb almost immediately after, with Sydney prices jumping by 0.3% in just one day.

In the coming months, the Reserve Bank cut rates three times and Australian Prudential Regulation Authority (APRA) made substantial changes to its regulations regarding loan serviceability ratios. Before the changes, a borrowers ability to service a loan was assessed against a scenario in which their mortgage rate was 7%. However, under the new rules, banks effectively set their own serviceability ratios based on the actual rate paid by borrowers plus 250 basis points (or 2.5%).

For the average full-time worker, this change increased their borrowing capacity by as much as $66,000, with lower rates as a result of the RBA’s rate cut continuing to gradually increase households borrowing power.

According to CoreLogic’s daily house price index, these three factors seemingly combined to create a boom in housing prices, with prices up by 4.22% in Sydney and 3.98% in Melbourne since the days following the Election (Calculations based on CoreLogic back series data).

In the run-up to the release of the second-quarter GDP figures which were expected to be particularly weak, Prime Minister Scott Morrison pointed to CoreLogic’s figures showing rising prices as a sign of economic strength.

With the CoreLogic index now showing prices rising at more than 1.6% a month in Sydney and Melbourne, the hype and positivity within the housing market continues to grow, despite the fact that traditional fundamentals such as mortgage credit growth are still at record lows. 

In a recent interview with Martin North of Digital Finance Analytics, REA Chief Economist Nerida Conisbee had a very different viewpoint. Based on the housing price data compiled by’s own records of properties sold and Hometrack, a subsidiary of REA. Conisbee stated that:

 “We're not seeing growth in Melbourne and Sydney as yet … we are still seeing price declines."

However, Conisbee went on to explain that some suburbs – predominantly premium areas – were still performing quite well. In particular, Conisbee singled out Vaucluse, Rose Bay and Collaroy as undergoing strong price growth.

The question of whether the REA price index or the CoreLogic daily index is actually closer to the mark is a matter for economists and statisticians to debate. But the competing viewpoint put forward by Conisbee and the REA does raise some rather pertinent questions.

The Australian people and even the Prime Minister himself have been making determinations and even life decisions, about the health and direction of the property market based on a single data source.

While the discrepancies between the REA and CoreLogic indices are likely based on differences between the methodologies employed by the groups, it is becoming increasingly clear that a rethink of the current state of the property market may be required.

CoreLogic may be correct and prices may be booming just like their index indicates, but if the REA data is correct and prices are not actually rising, some Australians may have been making one of the most important choices of their life on a boom that never was.

Tarric Brooker is a freelance journalist and political commentator. You can follow him on Twitter @AvidCommentator.

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