No cooling off period for the southeastern capitals

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There’s no sign of a cooling off period for the overheated property markets of Sydney and Melbourne. Figures from the Easter weekend indicate that the median house price in Sydney was $1.03m, up more than 17% from a year ago, according to CoreLogic.

It was the first time the private treaty median price has exceeded $1m, according to CoreLogic’s data, which dates back to February 2013. In Melbourne, the next most expensive state capital, the average price was $720,000—over 16% higher than during the same time last year.

Private treaty sales represented approximately 85% of all home sales nationwide.

On the auction front, it was a quite weekend as Aussies enjoyed the Easter break; however, demand was still strong as clearance rates remained high. Just 487 homes went under the hammer during the week ending on Easter Sunday, with over half of the action taking place in Sydney.

The average clearance rate across the capital cities was 78.8%, which was well above the 67.4% recorded at the same time last year.

CoreLogic’s latest data lends support to the Reserve Bank’s growing concerns. During the recent RBA Board Dinner, Governor Philip Lowe expressed his concern about the nation’s soaring house prices, saying it was pushing up the household debt to income ratio, which was already at a record high earlier this year.

“Too many loans are still made where the borrower has the skinniest of income buffers after interest payments,” he said. “In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong,” he said.

Lowe’s observations are even more worrying when analysed together with a new report from KPMG, which revealed that Australia’s lowest-income households are turning to negative gearing in growing numbers, leading to warnings of significant financial stress amongst society’s poorest when interest rates eventually rise.

“The bottom 20 percent of households has recorded the highest rate of growth in investment income at 8.5 percent per annum, compared to about 2.3 percent per annum on average for the remaining households,” KPMG said.

“This increase reflects a greater exposure to investment activities over the past decade, such as negatively geared property investment, which is confirmed by the substantial increase in value of second mortgage payments being undertaken within this quintile.”

Related stories:
Falling rents, loss of tenants could jeopardise investment portfolios
Government keen to limit properties per investor


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