It’s official. We are at the starting line of a boom.

The February median house price data reveals that across all Australian capital cities median house values increased by 2.3%. 

According to CoreLogic Head of Research, Tim Lawless it was the largest month-on-month change in CoreLogic’s national home value index since August 2003.

“The last time we saw a sustained period where every capital city and rest of state region was rising in value was mid-2009 through to early 2010, as post-GFC stimulus fuelled buyer demand,” he said.

Here’s how each capital city’s median house values stacked up on a monthly and annual basis:

Change in median house values

Here’s our key takeaways from the February release:

1. Housing demand is on fire. Units not so much – while house values were up 2.3% for the month and 3.6% for the year, units were up 1.1% for the month but still down 0.1% on an annual basis.
2. The capital cities have overtaken the regions – house values in regional areas are up 9.7% in the past 12 months (versus capital cities 3.6%); however, in February growth in the regions fell behind the capital cities (albeit still growing at 2.1% for the month).
3. Rents continue to defy historical trends – house rents in the past 12 months are up 3%-4% in Sydney, Brisbane and Adelaide, and up 13% in Perth. This is significant and unusual given inflation is running at 0.9%; we don’t normally see such a gap between the two!
4. Supply is at record lows – new listings are sitting at 26% below their 2020 levels and this is despite the quarter to February experiencing 35% more sales than the same three-month period last year. There’s less sellers and more buyers, which is why we’re seeing such strong price growth.

It’s a tough time for buyers out there, but it doesn’t look like getting any easier in the next 12 months.

In other news, there’s been a lot of ‘noise’ about interest rates going up and/or the Reserve Bank of Australia becoming involved to cool house prices.

The RBA couldn’t have been stronger in their recent statement when they held the cash at its record low.

Governor Phil Lowe said, “the Board will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

What does that mean?

Inflation is currently at 0.9% and the RBA want to see it sitting in the 2%-3% range for a while before they raise rates. How will that happen? We need wage growth. And how will that happen? We need unemployment back under 5% (currently 6.4%). The RBA don’t think any of that will happen until 2024 at the earliest and therefore we can expect interest rates to stay low until then.

That should be good news for homeowners and investors – you can comfortably run your budget on low interest rates for the next few years. It might not be such good news if you’re trying to get into the market and waiting for house prices to ‘crash’ because affordability (which is at a record low) is a big reason why there is so much demand for housing right now.

It’s even worse news for retirees unfortunately, because you’re getting less than 1% returns on cash in the bank today, and that’s unlikely to change anytime soon (for the same reasons as above).

In terms of the RBA getting involved in moderating house price growth. The governor spoke recently on that topic, saying “the RBA does not – and should not – target housing prices. Instead, our focus is on the lending that is used to purchase housing.” There you go.

One last thing. We noted the Oracle of Omaha, Warren Buffett, has been sitting on cash and buying back stock in his own company of late. When someone as successful as Buffett does anything, it pays to listen. So, we discussed his rationale for that on the podcast this week but also looked back on our favourite Warren Buffett nuggets of wisdom. He’s got many but our favourite:

“Do not save what is left after spending but spend what is left after saving.” Classic.

Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.

James and Alex