House prices keep rocketing higher as mortgage rates return to 1950s levels – but it's unclear how long the party will last

When it comes to the mortgage market, it’s the 1950s (Getty)
  • As mortgage rates return to levels not seen since the 1950s, house prices are again soaring, rising again in October, according to the latest CoreLogic figures.
  • Nationally prices jumped 1.2%, helped largely by 1.7% in Sydney and 2.3% in Melbourne.
  • However, while the RBA is hopeful that will translate to increased spending, IFM chief economist Alex Joiner fears it may lead to another risk of rocketing debt.

The good times appear to again be in full swing for the Australian property market – at least if you’re already in the market.

Another rocket has found itself under major capital city markets, lifting national dwelling prices 1.2% higher, according to the latest data from property research group CoreLogic.

“It’s becoming increasingly clear that the housing market rebound is gathering pace, both geographically and across the broad valuation cohorts, off the back of lower mortgage rates and improved access to credit, as well as an improvement in affordability relative to the market peak several years ago and consistently high demand via population growth,” head of research Tim Lawless said in a note issued to Business Insider Australia.

The boom is still being led by Sydney and Melbourne, with both cities recording growth of 1.7% and 2.3% respectively in October alone. Zooming out, prices in Sydney are 5% higher than they were last quarter and 5.5% higher in Melbourne. Another couple of months of similar growth will put both cities in positive annual territory since multi-year declines.

House prices in October (CoreLogic)

It’s being driven by reinvigorated appetite returning to the market.

“Demand for housing is responding to stimulus measures, including mortgage rates that are now lower than anything we have seen since the 1950’s and improved mortgage serviceability tests following APRA’s decision to adjust the minimum interest rate serviceability rules in July this year,” Lawless said.

While record-low mortgage rates have grown demand amongst owner-occupiers, they appear to have scared off investors, with lending this week having actually suffered its worst contraction in almost thirty years.

However, while the Reserve Bank of Australia (RBA) hopes the positive wealth effect of property prices will help get Australians spending again, not everyone is convinced sharply rising house prices are of economic benefit.

“I suspect the impact will be minimal at best, while the upside risk to credit growth is much more likely,” IFM chief economist Alex Joiner tweeted.

As house prices keep rising, and with wage growth not keeping pace, Australians will either have to take on greater debt to buy or be priced out. That could simply see Australians pile on more debt to their already substantial mountain.

“There has been a shortage of new listings for several years which has likely resulted in some pent up demand from homeowners looking to sell. Despite the improved selling environment, new stock additions remain low for this time of the year, which is likely a reflection of ongoing uncertainty and low confidence,” Lawless said.

Nor is the market guaranteed to keep on rising, it seems.

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