Early this year, we recommended preparing for the next upturn in Australia’s housing market; That time is now.
Earlier this year, we theorized that the “growing calamity” in Australia’s housing markets would prove to be only a lull. Since Australia desperately needed much lower rates going forward, and in the wake of the U.S. Fed policy changes, the RBA came through as expected, and cut the cash rate twice – down to a historic low of 1.00%.
Dwelling values in Sydney, the nation’s largest property market, have risen in each of the past two months, according to CoreLogic Inc. That ended a near two-year slide that saw prices tumble 15% from their July 2017 peak, and foreshortened a slump economists had forecast to extend into next year.
When I analyzed the Australian housing markets earlier this year, I received some grief from some who told me I was wrong on this case. But according to the latest numbers, Australian house prices are creeping back up again.
“A lot more people now are getting concerned that things are going to go up in the next six to 12 months so they’re trying to buy now,” said real estate agent Phil Allison, who handled the sale. As recently as six months ago, it was difficult to elicit a single bid at an auction for a house just around the corner, he said.
The sudden turnaround in sentiment can be traced to three factors: the central bank’s back-to-back interest rate cuts which have pushed mortgage rates to record lows; the regulator’s loosening of mortgage stress tests; and the surprise re-election of Scott Morrison’s government in May, which killed off the opposition Labor party’s plans to wind back tax breaks for property investors.
Australia’s Housing Market Is Suddenly Heating Up Again Bloomberg Economics, August 7th
Keep in mind, I am not telling you that there is any real value in most of the real estate markets around the world. The United States is the only nation that still possesses any real value when analyzed through mathematical ratios. Unfortunately, when it comes to Australia, as expensive as housing in Sydney and Melbourne may be to the local residents, there are many other cities around the world that make Australia housing look dirt cheap. This shows that we could see house prices move even further out of reach in the top areas of Australia. View the sortable table below to see where many of the Australian cities compare. I think you will see what I mean.
According to the above chart, Sydney ranks down at 43, while Melbourne comes in at 56. The other cities in Australia rank much lower. Although the median house price in Sydney may be A$864,993, in USD, that amount is about $587,000. All those U.S. dollars are washing up on the shores outside the United States, and for me, house prices in Sydney don’t seem so expensive anymore when priced in the greenback.
I still have a difficult time comprehending how expensive housing in all areas of the world have become to the average resident. But this astonishment won’t make prices drop. The central banks are doing everything it takes to keep the governments in business and there is plenty more to come. You and I mean nothing in the equation and will always be the victims of the collateral damage… unless we invest accordingly.