Tick, tick, tick, tick, BOOM!
ALMOST 21 years ago actor Will Smith, aka The Fresh Prince, hit number one on Australia’s music charts with the hip hop song Boom! Shake the Room. It only reached number 13 in the US, his home country, which may suggest Aussies have a fixation with the word ‘‘boom’’.
In recent months there has been plenty of talk of a housing boom in Australia. It’s mainly focused on the biggest markets of Sydney and Melbourne, which have had 16 and 11 per cent growth respectively in the past year.
However, even Adelaide’s housing market is starting to show some signs of life, up 4 per cent year-on-year, according to RP Data. But our prices are still only at 2009 levels, so any talk of a boom here is premature.
The problem with using the word ‘‘boom’’ all the time is that booms are usually followed by busts, which nobody who owns real estate wants.
And it can feed on itself, as buyers worry about missing out and dive deeper into property — prompting unsustainable price growth and resulting in the Reserve Bank slamming on the financial brakes with interest rate rises — another thing that nobody who owns real estate wants. The RBA won’t focus too much on what SA’s market is doing if it’s trying to cool down Sydney and Melbourne.
HSBC Australia chief economist Paul Bloxham has put the national property price surge into perspective. He says while prices nationally are up 11 per cent in the past year, they are only 7 per cent higher than their most recent peak and have averaged 4.5 per cent annual growth in the past five years — the same as their average over the past decade.
‘‘Housing prices are now rising after having fallen — so the upswing in this cycle looks quite normal at this stage,’’ he says.
Bloxham says Australia is still not building enough homes to cater for our population growth of about 400,000 people a year. If prices keep rising strongly, things could get risky, and Bloxham says a likely interest rate rise later this year should cool things down a bit.
Boom or not, prices are certainly pumping up, so it pays to be prepared for future volatility in home values and interest rates. Anthony Keane is the editor of Money Saver HQ, which appears in The Advertiser on Mondays.