The RBA’s recent House Price Forecast is another bout of good news as Australia continues to head toward pre-pandemic economic levels.
Reductions in interest rates, stronger residential construction (with investment projected to increase by 26% over 3 years) and relatively low unemployment has all resulted in a potential 25% increase in nominal housing prices between December 2020 and December 2023.
According to the RBA’s forecast, the record fiscal and monetary stimulus has been a primary factor in the housing boom, boosting consumer confidence and investment intentions.
This is why it is also a global phenomenon: House prices have increased in almost every advanced economy (23 of 26) with an average capital gain of 7% in nominal terms from their pre-pandemic levels through to the end of last year.
The lack of listings is also fueling high demand and is a contributory factor in the surge in house prices.
In the past, we have seen periods where lending standards have deteriorated leading to ‘riskier’ loans being approved. To combat this, the banking regulator APRA could start imposing stricter lending limits such as increasing interest rate buffers and limits on high loan-to-valuation lending.
Affordability constraints could also quell the surge. Put simply, asset prices cannot accelerate if people cannot afford to buy them.
As always, when it comes to making any long-term decisions involving large sums of cash, it is best to seek professional advice.
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