The finance data shows the boom taking root, coast to coast.
I’ve been saying a little while that we shouldn’t be surprised if this boom gets a run on quicker than most people expect.
So far we’ve had a massive policy response that was aimed to combat a collapse in household incomes.
Only thing is, household incomes didn’t collapse.
Or if they did collapse, it tended to be in lower-income cohorts (think hospitality workers for example), and these cohorts weren’t your home-buying cohorts anyway.
So in terms of housing demand, you’ve seen households with steady financial positions receive a big boost from the government, either through direct cash injections, or through substantially lower interest rates.
Now, you probably would have expected those households to be tucking that money away – saving it – in anticipation of easing economic conditions.
And they have been doing that.
But they’ve also been going out and buying houses. (That’s what the data I’m about to show you tells us.)
And that makes sense when you think about it. Yes, buying a house is a big financial decision. But if households are looking for stability and certainty, owning your own home is one of the best ways to deliver that.
And so we have seen a surge in home buying, particularly from first home buyers.
And we’re seeing this surge show up in the finance approvals data – how many new home loans are being minted each month.
And what that data shows is that approvals positively surged in the month of August, up over 12% in the month.
Finance approvals have shrugged off the impact of Covid altogether, and are up a very impressive 9% since March.
This is pretty amazing really. This actually points to a market that’s running pretty hot – and I don’t think anyone expected that.
I mean, I knew it was coming. You can’t throw that much money around without it having an impact. But still, less than six months into the worst recession since the Great Depression, it’s still surprising.
Now, the interesting thing here is that finance approvals is one of the best leading indicators of price growth we have.
And so if you go around the capital cities, you can see that it’s pointing to decent price growth in the short-term outlook.
Like Sydney. Sydney and Melbourne have been hardest hit, since they both rely on immigration pretty heavily. But still, the approvals data are pointing to price growth support around the 6-8% p.a level.
In Melbourne, I’d expect price growth to recover back to similar levels, especially as the lockdown restrictions continue to ease.
In Brisbane, the relationship isn’t as tight, but we could possibly see prices pushing past 8% p.a.
In Perth, I don’t think they’ve actually lined these series up quite right, and I’d expect price growth to turn positive again very soon, after spending quite a long time underwater.
And in Adelaide… well, nothing ever happens in Adelaide. But the trend is upwards.
So there you have it. Six months into what could easily be a depression, house prices look set to grow at around 6-8% p.a…
And the trend is going higher still.