‘People are getting desperate. It’s crazy.’
First home buyer Luisa Low, from Sydney
On Tuesday Reserve Bank of Australia (RBA) Governor Philip Lowe opted to keep interest rates on hold. For now.
The current record low 0.75% cash rate — cut three times last year — hasn’t done much to stoke economic growth. Though Lowe points out the benefits from interest rate cuts tend to take a while before they’re felt in the wider economy.
But the record low rates certainly have helped rekindle the Aussie real estate market. And reinflate the great housing bubble.
According to data from CoreLogic, Australia’s property values increased 4.0% in the final quarter of 2019. In December alone Sydney’s red hot property market saw prices rise 1.7%. While Melbourne’s average price gained 1.4%.
Those rates cooled a touch in January. But with Sydney and Melbourne homes still gaining an average 1.1% for the first month of 2020, the price gains are again looking highly frothy…and unsustainable.
Yet, in a sign that points towards further expansion of the bubble before any almighty pop, fear of missing out (FOMO) still has its grip on prospective buyers.
As the AFR reports:
‘Sydney-based first-home buyer Luisa Low has been searching for more than eight months after getting her mortgage pre-approval to buy a home worth up to $1.5 million, but her attempts were foiled by the scant offering.’
‘Scant offerings’ may come into play. But with buyers lining up with pre-approved low interest mortgages for a million dollars and more, it’s little wonder homes are getting snapped up. And prices are going through the roof.
You don’t need an economics degree to know this won’t end well.
That doesn’t mean the party’s going to end tonight. But when it does, it’s going to be ugly. And Australia’s long running recession-free record will be swept away.
PS: The next recession may be closer than you think. Find out why in this free report that lifts the veil on Australia’s ‘miracle economy’. Just click here.