$9.1 Trillion & Counting

Home prices across Australia continue to rise zipping past $9 trillion last month. Put into context, Australian residential real estate is now worth three times that of the entire superannuation pool. It is 28 percent higher that the combined value of commercial real estate, the ASX and super. Our homes are valued at three times Australia’s GDP.

Thanks to stats from Core Logic, a decade ago, Australian real estate was valued at $4 trillion and has risen by a staggering $2 trillion in the past twelve months alone. Sydney’s property market has led the way, adding 25 per cent to its home values in twelve months, pushing its median to $1,071,079 in October. Separating houses from apartments, Sydney’s house prices have risen more than 30 percent in a year.

ABC’s Four Corners program aired this week explored rising home prices in Australia (although I note Perth was only mentioned once in passing) and the problems that come with a lack of affordability. The program showed a little home in Bondi, offered for the first time in 68 years when the owner paid £1000 for it. Applying compounding inflation rates to this figure puts the current value at $37,000. It sold for $2,712,000.

The cheap price of credit is being partly blamed for the runaway prices. Interest rates are at historic lows with the Reserve Bank looking to raise rates once the inflation band of 2 to 3 percent is breached. With the chances of a rate rise looking more likely nowadays, Sydney-siders paying a mortgage at 2 percent will be nervous if rates moves to 3 percent.

Already, Sydney mortgage holders pay, on average, 45 per cent of their income towards their home loan repayments.

In Tasmania, affordability is also getting worse, where average incomes are about $250 per week less than in NSW. Yet house prices in Hobart have gone up faster this year than in any other Capital city, rising 28 percent. Hobart’s median home value has reached $678,170 where weekly wages are an average $1520 per week. Contrast to Perth’s median home value of $526,625 with average weekly earnings of $1879.

Perth remains enviably more affordable than east coast cities, despite recent value gains. Perth’s reported house value growth of 16.4 percent over the past year does feel under-reported with many suburbs experiencing more substantial gains.

It is difficult to predict how property markets will perform in the coming months as COVID-19 induced economic shocks recede and borders re-open. When interest rates rise, the hot east-coast property market could falter and with WA’s economy leading the nation, will Sydney-siders and other east-coasters sell up and move west chasing high paying jobs and cheap real estate?

In the event of an economic jolt that cools property prices, Perth is the one place when values are likely to hold, potentially defying future east-coast declines.