Residential property prices are picking up momentum in major cities as the number of homes listed for sale starts to lift from “extraordinary low levels,” data group CoreLogic says.
Up to the middle of May, home values in Sydney had risen 1.4% on a rolling four-week average from 1.3% at the end of April. Brisbane house prices increased 1.1%, Perth up 1%, Adelaide 0.6% and Melbourne’s home prices rose 0.5%.
It appears that the spurt in population – with 400,000 migrants expected in the year to June alone – has so far countered the effects of the RBA lifting its cash rate at the start of May for the 11th time in a year.
The revival of the housing market complicates the RBA’s task to rein in inflation without tanking the economy. Rising rents add directly to consumer price rises, while a lift in property prices boosts spending because people feel better off (the so-called “wealth effect”).
While the significant decline in housing prices over last year had constrained consumption spending, prices have stabilised and sales rates at auction are rising.
This has occurred despite the last Westpac-Melbourne Institute monthly survey of consumer sentiment showing confidence falling after the rate rise and a “mildly disappointing budget.” The key exception, though, was the housing-related gauge.
The “It’s time to buy a dwelling” index lifted 7.3% in May, extending the 8.2% gain in April. At 76.3, the index is back in the narrow 75-80 range typical before interest rates began to rise, although it remains about 40% below its most recent peak in November 2020.
Major city auctions will near 2,000 this week, or about 18% more than this time last year. Still, the measure remains about a quarter below the five-year average, and it will be a test of the recovery to see auction activity bounce back.
Rents, meanwhile, continue to rise at an annual pace of about 10% nationally, although renters “are approaching the ceiling” of what they are able to pay. People who can afford it will be looking to escape the rental situation, adding to buyer demand. The supply of new housing, despite the government potentially promoting new building projects, is likely to get worse before it gets better.
A recovery in house prices can have a positive impact on share market sectors:
Real Estate: Companies involved in residential and commercial real estate development, property management, and real estate investment trusts (REITs) tend to see increased demand and higher property valuations during a housing market recovery.
Construction and Building Materials: When house prices rise, there is an increase in demand for new construction, renovation, and remodelling. Companies involved in construction, building materials, and home improvement should benefit.
Financial Institutions: Banks, mortgage lenders, and financial institutions benefit from a recovery in house prices. As property values rise, homeowners’ equity increases, making it easier for them to access credit and borrow against their homes. This leads to increased mortgage lending and other financial services related to homeownership.
Home Improvement and Furnishings: When house prices rise, homeowners often invest in improving and upgrading their properties. This boosts demand for home improvement products, furnishings, appliances, and home décor.
Insurance: As house prices increase, the value of insured properties also rises. Insurance companies offering homeowners’ insurance policies benefit from higher premiums and increased demand for coverage.
Of course, the relationship between share market sectors and house prices can be complex, and other factors, such as overall economic conditions, interest rates, and consumer sentiment, also influence the performance of these sectors. Additionally, market conditions can vary across different cities and regions.
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