The latest housing price data from the Australian Bureau of Statistics reveals that the interest rate rises have had a quick effect. But while house prices are now falling, the figures reveal just how much the price boom since June 2020 has lowered housing affordability.
Private sector price surveys have suggested that house prices on average have fallen for four consecutive months. And now the quarterly housing data from the ABS has confirmed the effect of the first interest rate rises in May and June.
Let it be known that, yes, raising interest rates affects house prices.
In the June quarter the average dwelling prices fell 2% across Australia. But given real estate is all about location, the price changes were quite varied.
In New South Wales they fell 3.8% while in Queensland prices were mostly flat. South Australia on the other hand saw a solid 3.6% growth.
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While for the most part all states saw slowing growth if not actual price falls, the annual growth figures reveal just how big the rises were at the end of 2021 and early 2022.
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In June, average dwelling prices across Australia were still some 12% higher than they were the same time a year ago. In South Australia prices were 24% above last year’s level and in Tasmania they were up 20%.
Annual growth figures can, however, hide just how big the price boom has been.
Consider that since June 2020, when the government introduced the Homebuilder program to prop up the housing market during the pandemic, and the Reserve Bank had the cash rate at 0.25% with the likelihood of more cuts on the way, the median house price in Sydney has risen $324,000.
You don’t need to understand percentages to know that is a bloody big jump.
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And it is not just that prices have increased, it is that they have done so at a rate well above what had been occurring.
Take Brisbane. Since 2012, the rise of house prices there had been pretty steady. You could almost count on prices rising by around 3% and you wouldn’t be too far off.
It meant in June 2020 with a median Brisbane house price of $547,000 you could estimate (and budget) that in two years’ time buying a median priced house would cost around $590,000.
Cut to reality and the median price for a house in Brisbane in June was $800,000. Just a lazy $210,000 above expectations.
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Brisbane was not alone in experiencing this – all across the country median house prices are now well above what the pre-pandemic trend was suggesting.
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So much for long-term planning and patient saving to finally buy a house. In two years that has been blown to pieces.
And for the most part it has been house prices that have exploded. Apartment prices have lagged well behind, except in Darwin and Hobart.
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Adelaide is a good example of how weird this is. Usually, apartment and house prices go up and down at around the same speed. But over the past year house prices have surged, while apartment price growth has been steady.
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That makes it harder not just for people trying to go from renting to buying a house, but even for those who want to sell their apartment to buy a house because they need, for example, an extra bedroom for a child.
Dwelling prices however will likely keep falling because the latest figures on new home loans suggests there is very little increased demand. When the amount of new home loans is not growing, the price of new homes doesn’t generally grow much either.
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But so great has the rise in prices over the past two years been, it would require essentially a bubble bursting to even get back to a level of affordability that was in place in June 2020.
Back then, the average dwelling price in Australia was $689,400. That was around 13.4 times the average annual household disposable income of $51,487.
In June this year the average household disposable income was up to $56,129, while the average dwelling price was now some 16.4 times that at $921,500.
To get back to the same ratio as in June 2020, dwelling prices across the country would need to be 18% lower than they are now.
Even worse is that back in 2012, dwelling prices were just 11.4 times that of average household disposable income. To get back to that level, prices would need to be 31% lower than they are now.
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Of course, all of this is because there is always more concern about keeping asset prices going up than there is for wages growth.
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Inflation is a concern only when it applies to people getting paid for work. But when it comes to income from investing in property or shares? Pfft. Boom baby, boom. And the way the Morrison government and Reserve Bank responded to the pandemic exaggerated that to an extreme level.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
