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Cheap money fires up house auctions – 2 September 2019

Australian Financial Review

Residential property sales in Sydney and Melbourne are rebounding to near boom-time peaks as buyers respond to record-low interest rates and cast aside concerns about a sluggish economy.

Sydney recorded a preliminary auction clearance rate of 80 per cent on Saturday and in Melbourne 76 per cent of properties sold under the hammer, in line with sale results recorded during the five-year housing boom that topped out in mid-2017.

It was a very different story this time last year when both markets were in the midst of a downturn and just 49 per cent of properties sold in Sydney and 54 per cent changed hands in Melbourne, according to Domain Group data.

The Reserve Bank of Australia’s interest rates cuts in June and July to 1 per cent and the rejection of Labor’s proposed curtailing of negative gearing changes at the May federal election have injected confidence into home buyers.

“It’s the strongest bidding I’ve seen since the peak of the boom, and it wasn’t just Saturday, that’s been in the past two weeks,” Sydney auctioneer Damien Cooley said.

“Not every property is selling unbelievably well but when you see those clearance rates around 80 per cent and the number of registered bidders averaging almost six per auction that is starting to really fuel price rises.

“I’d be very surprised in this quarter if we don’t see a significant rise in house prices.”

Prices have been rising for the past three months – with the top-end of the market leading the charge – and August house price data to be published Monday by CoreLogic will confirm Sydney and Melbourne property prices surged more than 1 per cent last month, with more modest results expected in smaller capital cities.

The RBA’s dilemma

The snap buyer turnaround in recent weeks could complicate the RBA’s monetary policy plans.

Official data due this week is expected to show the weakest annual economic growth since the aftermath of the global financial crisis in 2009.

Economists expect local economic growth to be a subdued 0.5 per cent in the June quarter and to slip to 1.4 per cent for the year.

If the economy continues to soften, the RBA will be under pressure to accelerate further rate cuts to lift growth, support employment and boost soft inflation.

But lower mortgage rates could underpin a jump in record household debt-to-income levels already nearing 200 per cent and may cause house prices to spring back too quickly, adding risks to financial stability.

The RBA has repeatedly played down the risks of a property price bubble reflating, citing constraints imposed by tighter lending standards by banks and regulators, indebted households becoming more wary about borrowing and fewer foreign buyers.

However on Friday the RBA said financial regulators “stand ready to consider further measures” to curb risks on residential mortgage lending and high household debt if circumstances require it. RBA governor Philip Lowe the previous weekend said central banks “risk just pushing up asset prices” with ultra-low interest rates, as he urged government infrastructure spending and structural reform to play a larger role in supporting the economy.

Lenders are competing hard for new business with 22 home loan products currently on the market offering three-year fixed rates under three per cent for owner occupiers, according to comparison site InfoChoice.

Property analysts say a key test for the property market will come during the spring listing season, when more supply of homes is expected to come on to the market for sale.

Buyers are back

Any concerns about a weak economy and the recent memory of a housing downturn were out of sight and mind for house hunters over the weekend as clearance rates soared across the two biggest capital cities.

Sydney recorded a preliminary auction clearance rate of 80 per cent, from 485 scheduled auctions, while 76 per cent of properties from 718 scheduled auctions in Melbourne sold under the hammer, according to Domain Group.

However the clearance rate for the weekend gone by is likely to be revised down slightly as more results filter through.

Corelogic’s results, which track auctions scheduled across the entire week, were slightly lower in Sydney at 78.9 per cent but a similar clearance rate of 76.1 per cent in Melbourne was reported. The success rate of auctions across the capital cities was 73.6 per cent.

In South Coogee on Saturday a deceased estate – a semi-detached three-bedroom house with ocean views – sold for $2.715 million, which was $665,000 over its $2.05 million reserve.

“Admittedly it was not a high reserve. I thought the value of the property was about $2.2 million or $2.3 million, but there was really active bidding and tactics I haven’t seen in a long time,” Mr Cooley said.

 Article appeared in The Australian Financial Review on 02 September 2019.

Article written by Ingrid Fuary-Wagner and John Kehoe.

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