House price growth 'unsustainable'

Graham Cooke finder Shane Oliver amp RBA house housing market

3 May 2021
| By Chris Dastoor |
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Despite the peak growth rate experienced by Australia’s housing market, almost half (47%) of experts say it is unsustainable, according to this month’s Finder RBA Cash Rate Survey.

Property market growth surged at its fastest rate in 33 years in March and national dwelling values also increased by 6.2% over the past year according to CoreLogic.

Graham Cooke, head of consumer research at Finder, said that some experts were concerned a housing bubble was emerging.

“Rock-bottom rates, government stimulus and a fear of missing out have really lit a fire under the belly of the market,” Cooke said.

“Listing numbers are unable to meet high buyer demand, keeping inventory levels low overall and adding to the sense of urgency among buyers.

“We’ve seen more borrowed for housing over the last six months than during any similar period in history – and economists have tipped us to borrow more over the next six.”

However, Cooke said, the view was this fast-paced growth would not continue indefinitely.

“It’s unlikely we'll see any regulatory intervention from policymakers yet, but this might be a possibility down the track,” Cooke said.

While experts agreed the Reserve Bank of Australia (RBA) was unlikely to increase the cash rate for a while, it did not mean mortgage holders could rule out an out-of-cycle rate hike and a small rate increase could cost mortgage holders $26,000 in interest.

Over the course of a 30-year loan, this would cost them an extra $26,330 in interest.

Shane Oliver, AMP Capital chief economist, said: “While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike, being a tight jobs market, wages growth well above 3% and actual inflation sustainably within the 2% to 3% target range. So a rate hike is still a fair way off although I think it will come before the RBA’s expectation for 2024 at the earliest.”

Potential repayment increase if banks increased rates by 25 basis points

 

Current average
variable rate
(4.27%**)

25 basis point increase
(4.52%)

Loan size

Annual cost

Monthly increase 

Annual increase 

30-year cost

$250,000

$14,793

$37

$443

$13,287

$495,420*

$29,316

$73

$878

$26,330

$750,000

$44,380

$111

$1,329

$39,860

$1,000,000

$59,173

$148

$1,772

$53,146

Source: Finder, RBA                                                                                                            
*Average owner-occupier mortgage in Australia (RBA)
**Average owner-occupier standard variable home loan rate (Finder) 

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