Red-hot market stokes worries of household debt

The continuing housing boom is raising new concerns about consumer debt levels as some buyers are seemingly becoming more cautious about overpaying for properties.

Last week, ANZ said it was being buried in a tsunami of applications – so much so that it has cut its mortgage marketing – and brokers said some buyers were snapping up homes at auction before they have locked in funding.

But Owen Wilson, chief executive of property portal REA Group, told The Sydney Morning Herald that the current economic situation indicates that house prices will continue to rise for the rest of the year.

“What we’re seeing is one of those rare markets where it’s a good time to sell, and it’s a good time to buy,” Wilson said. “If you’re a buyer who’s either looking to upgrade or even enter the market, these record-low interest rates create the best conditions you could ever have for borrowing money to enter the market. So you’ve got this great equilibrium in terms of buyers and sellers.”

Mario Rehayem, chief executive of non-bank lender Pepper Money, agreed.

“The outlook is extremely positive, and that’s not just my view – that’s the whole industry’s view,” Rehayem told the Herald.

However, IMF Investors chief economist Alex Joiner told the newspaper that while the spike in housing prices had not yet raised worries about financial stability, he was concerned about what would happen when interest rates finally rise.

“Basically, we are capitalising structural and cyclical low interest rates into house prices, and we have done so over the last 30 year,” Joiner said. “What goes up very quickly could potentially come down quite quickly once interest rates start to rise.”

The Reserve Bank of Australia has repeatedly said it plans to keep the cash rate at its current record low of 0.1% until at least 2024. Joiner said that when interest rates started rising, price growth would typically slow, or prices would fall.

Joiner said the current boom was also exacerbating housing affordability issues, and it meant the household sector could come out of the COVID-19 recession with more debt than previously, the Herald reported.

Wilson said the market was beginning to see caution from buyers.

“We are starting to see a little bit of steam coming out of the market,” he told the Herald. “Buyers are becoming a little bit weary of overpaying in this market, so we are starting to see a bit of a rebalance.”

According to AMP Capital, the pace of home-price growth is likely to slow from 15% this year to 5% in 2022, and prices are likely to see a modest drop in 2023.

From MPA

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