There are many explanations for the astronomical rise in house prices along Australia’s eastern seaboard. But most economists settle on is that we haven’t built enough homes in Sydney, Melbourne and Brisbane to support their booming populations.
According to real estate consultancy firm Red23, lot sales in Melbourne are averaging a record 65 a day with more than 20,000 sales over the past 12 months. The rate of growth in the city’s population, however, indicates around 27,000 new homes are needed each year. No wonder house prices keep rising.
That poses a problem for investors and homebuyers alike. Housing affordability is at an all-time low; credit is becoming harder to obtain; and banks are pushing interest rates upwards out of cycle. Against that backdrop, it’s hard to imagine residential house prices performing as strongly as they have recently over coming years. What are investors to do?
Before explaining how to respond to recent price increases, it’s vital to understand how exceptional recent house price performance has been, and the factors that threaten future performance.
Sydney’s median house price now rests at around $856,000. Melbourne’s is not far behind at $655,000. According to CoreLogic, since January 2009 – the height of the GFC – the median dwelling price in Sydney has surged by 113.7%, outpacing Melbourne where prices have shot up by 101.4% over the same period.