According to figures from the Domain group, Sydney house prices surged 22.9 per cent in the last year, the fastest pace since the 1980’s.
The surge, surpassing growth recorded in the 2001 and 2002 booms according to the Domain’s Dr Andrew Wilson, takes the Sydney median house price past the $1 million mark, making it more expensive than London.
The bubble continues to create an increasing challenge for regulators. Reserve Bank Governor Glenn Stevens stressed yesterday in an address to the Anika Foundation Luncheon titled “Issues In Economic Policy”, that we need to take a longer term view of momentary policy and the implications of record low interest rates. Stevens remarked:
The risk, however, is that this process can lead to a mindset in which policymakers end up responding to quite short-term phenomena, using instruments that take quite some time to have their full effect, including effects that might actually turn out to be adverse.
Stevens is warning any benefit in dropping interest rates now to support jobs and growth is likely to be outweighed by fueling the housing bubble, that could collapse with far more devastating and adverse results.
It is not quite good enough simply to say that evidence of continuing softness should necessarily result in further cuts in rates, without considering the longer-term risks involved. Monetary policy works partly by prompting risk-taking behaviour. In some ways that is good: in some respects, there has not been enough risk-taking behaviour. But the risk-taking behaviour most responsive to monetary policy is of the financial type. To a point, that is probably a pre-requisite for the ‘real economy’ risk-taking that we most want. But beyond a certain point, it can be dangerous.
Reading between the lines, while the housing market bubble in Sydney and Melbourne, two of Australia’s largest markets remains out of control, we can expect to see any changes to the official cash rate on hold as the economy slows and unemployment ticks up. Stevens also remarked, growth of less than three per cent will be the new normal for Australia.
» Median house price in Sydney tops $1 million for first time – The Australian Financial Review, 23rd July 2015.
» Issues In Economic Policy, Address to the Anika Foundation Luncheon – The Reserve Bank of Australia, 22nd July 2015.
It looks like Mr. Tulip’s claim about properties being 30% undervalued have been taken by investors and alike quite seriously.
Common! $1M sounds pretty lousy by today standards lets make it more interesting, lets bit London and NY all together. With 22.9% p/a we can have 5M median price very soon.
On the serious note though it has reached grotesque / absurd level whatever you wanna call it.
Its still ‘only’ Sydney and Melb.
All this talk of a bubble is holding back the rest of the country where house prices have been flat or declining since 2009.
Steve Keen was correct in his predictions, for the rest of Australia at least, increased debt lead to a drop in spending and economic contraction.
In Sydney a short pause in 2008-2010 just lead into another boom.
Comparing what’s happening now with the late 80s is not really comparing apples with apples. In the late 80s prices were rising at the same time that interest rates were rising. FOMO (fear of missing out) was fuelling the bubble.
This time, however, while FOMO is weighing heavily on people’s decisions to buy, prices have really skyrocketed way above what anyone could have predicted, even a few years ago. And while monthly repayments are affordable with record low interest rates, the size of the mortgages have never been bigger. Raising interest rates by a percent or two would have devastating consequences for a lot of highly leveraged buyers.
The other factor that is having a huge impact now, and wasn’t a factor back then, is the influx of foreign, particularly Chinese buyers. Yes, we had Japanese buyers back in the 80s but they were largely confined to SE Qld. In any case, back then, in any development, half had to be sold off to Australians. Rudd, in his urgent quest to sell off this country, scrapped all that. Now the foreign sell-off is determinedly pursued by both parties as great chunks of farmland, commercial property, and of course residential property go to the highest bidders.
And then we have the SMSFs piling into property. Previously, they couldn’t borrow to buy property, but again, Rudd got rid of that tradition.
So with all this government intervention, is it any wonder that the average Sydney house is now past the $1 million mark? Not that that will be enough for our policymakers. “To the moon and beyond” is their motto.
I just read an article in the Sydney Morning Herald about a very lucky Sydney man who got paid $2 million for his very modest weatherboard (not even brick) house in the Sydney suburb of North Ryde.
He paid $365,000 for the house back in 1999, and a property development paid him $2 million for it, and believe me, this house was nothing to write home about. The man who made a killing on the house he just sold admitted that he was very lucky in getting such a huge price, and that he will never see that kind of money of again (barring an unlikely lottery win).
This property madness in Sydney just keeps going and going, one thing for sure, the next generation of young people growing up in Sydney have NO chance at ever buying a home (unless they get a “better paying job” according to our clueless treasurer).
It looks like good old fashioned greed with regards to this property madness (especially here in Sydney), will be a death sentence for the rest of the Australian economy.
These Kamikaze Lemmings called central bankers are acting in unison to inflate as many bubbles as possible in every global bond, stock & RE market before they all go over the cliff. A 4 year old with a calculator could make better decisions. We forget their primary function is to safeguard the major banks and their profits and apply overwhelming pressure on the governments to bail them out when it all implodes. We did not get to this stage by accident. Banking lobby groups have been instrumental in changing regulations in favour of their masters since the start of western central banking. The object of the game is to simply own the whole Monopoly board. (Starting with Greece)