The two most important leading indicators are redlining it.
The Aussie property market remains on a miracle run. Despite 400 basis points out of the RBA in very short order, despite a slowing economy and consumers in retreat, the property market continues to post gains.
And take a look under the hood, and there’s no anomaly here. This isn’t a bug in the data. The Aussie property market is genuinely strong.
Look at new mortgage commitments for example. Most houses are bought with a mortgage, so commitments tend to follow prices pretty closely.
And mortgage commitments are growing strongly. In fact, they were up 4.8% in the month of May alone!
Commitments are still lower than they were this time last year, but that was a very strong patch, and the trend has clearly turned in the annual growth rate.
So this is a story that’s entirely consistent with rising house prices.
Indeed, the next chart compares the quarterly growth rate in new mortgage commitments against the growth in national dwelling values, as measured by CoreLogic:
So that puts the current growth rate in prices – around 4% nationally about right.
But that’s 3.5% a quarter, so that translates to about 14% a year.
That’s booming.
And the key thing is how quickly the series is turning. On the current trajectory, we could be heading to 6%, which is 24% a year!
That’s thoroughly booming!
I don’t expect the market will be able to sustain that pace. 24%p.a is crazy, even for a quarter, and especially with the headwinds of the fixed rate reset still in play.
But it does give you a sense of the kind of head-room experts are factoring into their forecasts right now.
10-15% is just not out of the question. It wouldn’t look strange.
At the same time, auction clearance rates remain very strong, and that’s another series that tightly correlated with house price growth.
Again, on the current trajectory, 6% is not looking unreasonable.
So this boom has substance.
There are still headwinds. They might take some of the edge of in current months.
But the fundamentals still point to strong growth in the months ahead.
- Immigration continues to surge back.
- There’s a huge shortage of stock on the market.
- Rents are still growing exponentially.
- And household incomes are holding up, especially with wealthier households.
Short of another 400 basis points out of the RBA, it’s hard to see what might knock the legs out from under this boom.
It’s looking pretty sturdy.
JG.
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