Housing boom to continue in Sydney.

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An honorable member of the Coffee Shop Has Just Posted the Following:

I bought my house last year, it has grown by at least 10% and more then 20% according to a recent sale in my area. According to the following article, I'll be expecting strong growth in the next 2 years at least. I'm also lucky enough to buy at a time when price falls. Buy low, sell high as the saying goes. Looking at another property now.

http://www.theguardian.com/business/...t-does-it-mean

Quote:
Sydney property boom: what does it mean for the rest of Australia?
If Sydney housing continues its fast growth, the Reserve bank will need to cool Sydney, while not freezing everyone else
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Reserve bank governor Glenn Stevens
Reserve bank governor Glenn Stevens. Photograph: Alan Porritt/AAP
The statement by the Reserve bank governor on Tuesday announcing no change to the cash rate conveyed a sense that monetary policy was working well. The RBA appears eager not to shift gears in the short term, but the period of easing monetary policy, in place since November 2011, seems at an end.

The release of data on both building approvals and housing prices in the past week suggests on the surface that the policy has worked. But the data reveals a complex picture that makes the RBA’s life difficult as it attempts to use the one-size-fits-all measure of interest rates to deal with a fragmented national economy.

In the past, talk of the two-speed economy related to mining and non-mining states. Now the two-speed economy refers to housing prices – essentially Sydney and everyone else.

The housing price index figures released on Monday showed a spread of price changes across the capital cities from Sydney’s three-month increase of 3.6% to Adelaide’s fall of 0.6%.

Annually, all capital cities have experienced housing price increases, but Sydney easily leads the way with an 11.4% increase that is almost twice the growth in Melbourne of 6.8% and well above that of Brisbane and Adelaide with 4.1% and 1.0% respectively. Only Perth, with annual growth of 8.6%, is also above the weighted average of all capital cities, which displays just how much the Sydney housing market skews the national picture.


Clearly the RBA’s rate cuts turned the housing market around. Even in Adelaide, where prices are essentially the same now as they were in November 2011, decline was arrested by the drop in interest rates.

The RBA does not appear to fear an overheating housing market. On Tuesday it noted that “the pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households”. It concluded that “housing and equity markets have strengthened further, trends which should in time be supportive of investment”.

But if Sydney continues to grow at a pace well above the rest of the nation, the RBA will be faced with the problem of cooling Sydney, while not freezing everyone else.

Moreover, while the RBA monitors housing prices, it is more concerned about the level of housing construction. In short, it wants houses to be built.

On this measure, the data on building approvals released last week would give the bank some joy.

The big “holy cow” number was the 14.4% monthly increase in the total number of dwellings approved. But that was the seasonally adjusted figure, which jumps up and down as much as a Toronto mayor on a night out with his crack pipe, so they’re best ignored. The trend figure indicated a more modest rise of 2.5% (less than the 2.6% increase observed in August).

In annual terms the number of building approvals rose 15.1%. But, as with housing prices, when you break the figures down to the state level, the picture is rather fractured.

NSW again leads the way with a jaw-dropping 40.7% growth. But in Victoria the number of dwelling approvals has actually fallen in the past 12 months – although the situation has improved slightly in the past three months. While Western Australia and South Australia have seen solid growth, it appears to have peaked in the past few months. And Queensland’s growth has been flat for most of this year.


It all suggests that while the situation has certainly improved since November 2011 – when annual building approvals were falling by 17% nationally – the benefits of the low interest rates are not flowing through to all parts of the country.

The RBA’s decision becomes even more complicated when you consider its ultimate purpose is neither to improve the housing nor construction sectors but (according to its enabling act) “to contribute to ... full employment”.

And the employment sector since November 2011 shows a much more depressing picture.

Since the RBA began easing monetary policy, full-time employment has grown by a mere 1% and has been flat for 12 months. Given the average annual growth over the past 10 years is 1.9% and full-time employment has grown by barely half that in nearly two years, it would take a courageous person to suggest monetary policy has worked as well as hoped:


Of course during this same period the mining sector has come off the boil and the exchange rate has remained well above the long-term average. Both these factors have hindered the employment situation – and no state has been immune. Even in NSW full-time employment fell in the past 12 months:


It means that while the housing market in Sydney continues to zoom ahead of the rest of the nation, the RBA is unlikely to put its foot on the monetary policy brakes until the improvement in housing has flowed through to other sectors of the economy.

At present unemployment is still expected to rise above 6%. As long as overall inflation remains low, the RBA might ignore Sydney’s housing prices and keep rates steady until employment improves.

It’s a tricky line to tread, and if the Coalition government continues the policy of allowing monetary policy to do all the work, it places the weight of the economy upon Glenn Stevens’s shoulders.




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