Few would have predicted it a year ago but house prices are booming again.
Twelve months back, coming off the longest housing boom in Australian history, residential markets were facing tightening credit conditions and slow wages growth. As a result, there was great uncertainty about the direction of house prices.
Then, a few weeks after the first local case of COVID-19, international borders were shut and lockdown restrictions imposed. Record population growth ground to a halt and the housing market went into hibernation. Investor sentiment quickly turned south.
This was an understandable position. With fewer students and travellers, universities closed their doors and short-stay tourism dried up. With people confined to their homes, shopping centres and offices emptied. Inner-city apartments were the main casualty, particularly in immigration-dependent cities. House prices in Sydney fell by 3%, in Melbourne by over 5% with other cities showing weakness.
That, some commentators believed, was one the start. Some warned that house prices could decline by as much as 30%.
Almost inconceivably, house prices are currently growing at their fastest monthly rate since the late 1980s. That pace may quicken. According to Macquarie, we may see a trough-to-peak rise in Australian dwelling prices of around 20% by the end of 2022. As the chart below shows, capital city dwelling prices are already approaching pre-COVID peak levels.