Australian policy makers are facing challenges amid growing fears that the country’s soaring home prices could destabilise the land’s households, banks, and wider economy. However, it seemed that the problem is not as serious as it seems.
Latest data on house-price growth suggests that such widespread concerns are inflated. And if there is a housing problem, it is almost exclusive to Sydney. According to CoreLogic RP Data, home prices grew nationally by only 7.4% in March from the previous year. It was said to be the slowest rate since September 2013. By comparison, home prices in Sydney jumped by 13.9% during the same period.
In Melbourne, meanwhile, home prices climbed by only 5.6% year-on-year in March. Perth, on the other hand, recorded a 0.1% decline in home prices during the same period, while Brisbane in the northeast experienced a modest 2.7% growth in home prices.
“Sydney’s growth trend appears to have disengaged from the rest of the capital city housing markets,” said Tim Lawless, head of research at CoreLogic RP Data.
But why exactly Sydney is outpacing other major Australian cities in terms of growth in home prices?
Sprawling from the mouth of Sydney Harbour in the east to the Blue Mountains around 50 kilometres inland to the west, Sydney is the country’s largest metropolis and financial hub. Wealthy home buyers are attracted to the city’s good schools and colleges. Many of them have purchased properties in desirable beach areas like Bondi and the many quiet coves that line the harbour.
According to experts, Sydney outpacing other cities suggests that the national property market could be returning to normal. During the mining boom, home prices in Perth shot up to rival Sydney. In 2007, the cost of purchasing residential properties in both cities was almost at the same level. However, Perth has lost its desirability after prices of iron ore collapsed to 10-year lows and new investment in Western Australia became scarce as China’s economy slows.
Adam Boyton, chief economist at Deutsche Bank Australia, said Sydney’s soaring home prices should not affect other aspects of the Australian economy. He said they should not stand in the way of an interest rate cut that could benefit the broader economy.
Meanwhile, the Australian economy grew by just 2.5% in 2014. Experts said the current economic growth is not enough to mitigate the impact of the country’s unemployment rate, which is now at its highest level in over a decade.