Australian house price growth surges to seven-year high

Residential property prices in Australia are increasing at their fastest pace in seven years, fuelling growing fears about a property bubble and the potential for instability in the economy should the market crash, prompting regulators to crack down on high risk mortgage lending.

Fresh data from Corelogic, which tracks property prices, reveals that house prices grew 1.4% nationally in March from February, taking year-on-year growth to 12.9%, led by gains in Sydney where prices surged by 18.9% - the fastest rate of growth in almost 15 years – while prices in Melbourne grew by 4.2% over the month and 15.9% over the year.

Home prices in Sydney have more than doubled since the financial crisis hit in January 2009, while prices in Melbourne are up 92.4%.

“Four of Australia’s eight capital cities are now showing an annual growth rate in dwelling values higher than 10 per cent,” said Tim Lawless, head of research at Corelogic.

The sharp increase in property prices was fuelled by the Reserve Bank of Australia’s decision to cut interest rates twice last year to a record low of 1.5% and a rebound in buy-to-let investor activity during the second half of 2016, according to Lawless.

The Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA) have expressed concern about the existing rate of home price growth in Australia.

APRA told banks last week to limit the flow of interest-only lending to 30% of new residential mortgage loans, while banks are also now required to keep lending to property investors well below a benchmark of 10% growth.

More stringent lending conditions also mean that it is now obligatory for banks to impose stricter internal limits on the volume of interest-only lending at loan-to-value ratios above 80%.

Some economists believe that the latest measures to cool the mortgage market will be successful in slowing house price growth.