New data shows us that we’re living through the biggest property boom in 18 years. But it’s no flash in the pan, and when you look at the fundamentals, you can see that this boom is just getting started.
Turns out house prices are booming. I know, right? Who saw that one coming??
I’ve been writing about it for two years.
In case there was any doubt, RP data published their house price data for March last week. What they showed was that the 8-city average was up a whopping 2.3%.
That’s huge. Keep that pace up for twelve months and you’re looking at annual house price growth somewhere in the mid 20’s.
According to RP data, it’s the biggest monthly gain in the 18 years the series has been running… so perhaps it’s the strongest month in Australian history!
The last record was back in August 2001, when house prices grew 2.2%.
RP Data also published an interesting set of charts, comparing house prices with previous peaks and previous troughs.
Half of our eight capitals are now posting levels higher than their previous peaks, taking house prices into record territory. This includes Sydney, Melbourne and Perth. Brisbane remains stuck stubbornly below and Hobart is really in the can.
Changes over the past twelve months are also impressive, with Sydney growing 15.6%, and Melbourne growing 11.6%. The other capitals didn’t have strong results in the second half of 2013, but they’re catching up.
But overall, we’re looking at national growth of 10.6%.
Double digits. Look at that. Doesn’t someone owe me a beer?
This next chart here tracks annual growth rates in the capitals and outside the capitals (which is such a mixed bag, it doesn’t really make sense to lump them together).
Anyway, if this cycle is anything like the last, you’d have to think we’ve still got one to two years before price growth peaks, and another three to four years before prices consolidate.
That means there’s a lot of good buying to be had.
And you can see this in the data too. The housing market is a hive of activity, and sales activity has jumped up above the it’s 5 year average:
But even then, and despite the rocket under prices, sales activity still remains well below the peak levels recorded in the 2009/10 boom. So we’ve still got a way to run.
In response to the heat being generated in the market, builders and developers are getting back in the game, backed by banks who know a good thing when they see one. As a result, dwelling approvals have spiked to record highs in recent months.
Dwelling approvals are higher than they were in 2009 and 2001. Now, while you might think that this means that extra supply is coming on board and that’s going to dampen prices, remember that this is in levels. So it’s saying we’re producing about the same amount of houses a year as we were in 2001.
But the population keeps growing and growing strongly. So if supply was keeping up with demand, we’d see an upward trend in the approvals data.
But we don’t. What jumps out at you is just how flat it is – on a longer run scale. So that means the market isn’t unwinding the shortage anytime soon (even though approvals are up), and prices are going to keep on rising.
Look at it this way. The dwelling rate (how many dwellings we build per 1,000 people) is in long run decline. That’s what this chart here shows:
Despite the recent pick up in approvals, the dwelling rate remains stuck around historic lows. I mean, compare the current rate with where we were back in the 80s and early 90s.
I don’t know exactly what’s to blame – though I suspect zoning, land release and development restrictions have something to do with it. But the fact is Australia just doesn’t build enough houses.
And that, more than anything, is what’s driving this boom. We hear a lot about what’s happening on the demand side – massive buying form the Chinese, self managed super funds etc.
But what’s going on on the Supply side is just as important.
And it’s why I think this boom could be a lot bigger than anything we’ve seen in recent memory.
And with prices on the march again, the market is turning bullish. The mood has shifted when it comes to property.
Take a look at this chart here. This comes from The Westpac-Melbourne Institute household survey. They ask respondents where the wisest place to put new savings is.
What it shows is that in recent months, for the first time since the GFC, a greater share of people think putting money into real estate and equities is wiser than (risk-free) deposits.
So what do we make of this? Well, first of all it explains why we can expect to see prices keep on charging ahead over the medium term. The market’s got momentum.
But it also means that your opportunities to ‘buy at the bottom’ are drying up. Everyone is tuning into the amazing returns that the property market is offering up.
If you don’t want to invest with the herd (never a winning strategy in the long run) then my tip is you want to be pulling the trigger pretty soon.
The biggest boom in 18 years is in full effect.