• Australian property prices rose by 7% in the three months to May, reflecting a rate last seen in 1988, according to CoreLogic.
• The growth was led by Sydney, jumping 9.3% in just 12 weeks.
• The latest data shows a record $31 billion flooded into the property market in April alone, with some signs emerging that lending is becoming increasingly risky.
• Visit Business Insider Australia’s homepage for more stories.

The housing market is running out of records to smash, as Australia experiences a perfect storm of easy money, record low interest rates and government incentives.

Prices nationally shot up 7% in the three months to May, new CoreLogic data shows, marking the fastest quarterly rise since 1988.

The astounding figure was led by Sydney, which rose 9.3% in the short space of 12 weeks, supercharging the quarterly average and dwarfing even the mighty run up seen during 2019.

Fuelling all of this is a record amount of credit that is pouring into an already hot market.

“Over April 2021, approximately $31 billion was lent for the purchase of property in Australia. This is up from $30 billion in the previous month, and marks a record high,” Eliza Owen, CoreLogic Australia head of research, said.

First home buyers now make up almost one in three bidders compared to the long term average of one in four, even as they increasingly search for homes over $1 million.

This dynamic is beginning to change however as investors piled back into the hot market in April, especially in Queensland, South Australia, Western Australia, and the Northern Territory.

But it is owner-occupier that still make up more than half of all buyers, using their growing equity to outmuscle everyone else.

“Compared with first home buyers, owner occupiers and some investors who already own a home may be better equipped to participate in a dwelling market when values are rising, as existing housing assets may have seen an uplift in value from the broad-based housing boom,” Owen said.

She notes that deteriorating affordability is beginning to bite at the same time that first home buyer schemes taper off. At the same time, the heat in the market is showing up on the kind of lending being approved.

“Loans with high debt-to-income and loan-to-income ratios did increase more substantially in the quarter. However, part of the lift may be attributable to higher income borrowers being active in the market, with higher income households generally accounting for a large share of total household debt,” Owen said.

“This is also reflected in the faster capital growth rates currently observed at the higher end of the housing market, where high-end property buyers may be more active.”

It continues a boom that began in October last year, when subsiding pandemic fears and hot auction markets reversed the downward trend of 2020.

Momentum has only increased in the early part of 2021 as prices began to soar by multiple percentage points each and every month.

While regional markets, welcoming fleeing city dwellers, led the early recovery, capital cities are now jostling their way to the from of the pack.

Not that they’re there yet. Over the last 12 months, regional prices have climbed 15.2% compared versus 9.4% in capital cities, albeit off a smaller base.

All have been propelled higher by an influx of buyers, spurred on by record low interest rates and an anxiety to not miss out altogether.

“CoreLogic estimates sales volumes increased 34.4% nationally over the twelve months to May, with sales volumes sitting well above the 5-year average,” the research house wrote.

At the same time, there are fewer properties on the market to buy, with listings down 23.8% compared to the last five years. Rather than simply being the product of fewer sellers, homes are being observed as being snapped up much sooner than previously as competition rages.

This may only be exacerbated as winter begins to set in, according to Archistar chief economist Andrew Wilson.

“The onset of the relatively subdued winter selling season will as usual result in reduced new listing numbers however underlying housing market activity is set to remain at its strongest in years,” Wilson said.

He says his data indicates listings have declined 6% over the last six weeks, while lockdown restrictions in Victoria have dropped Melbourne listings by a full third.

“By comparison Sydney new listings have fallen 5.1%, Brisbane down 4.6%, Adelaide down 11.6% and Perth where new listings are lower by just 2.9% on the latest month-to-month comparisons,” he said.

In combination, it may help push prices higher still as supply again shrinks, at the same time that Australian buyers are under increasing strain. While Owen believes the risks posed are more muted than they may have been made out to be, there are some warning signs present.

“Riskier types of lending are rising, but probably not enough to trigger a regulatory response yet,” CoreLogic said in a separate research note issued on Thursday. “Regulators and policy makers are likely to be watchful for any signs of slippage in lending standards.”

The federal government and regulators have appeared reluctant to intervene in the hot market so far, but may have their hand forced if Australians rack up more and more debt, especially with the threat of rising interest rates ever present.

As values shoot up at a record-breaking rate, regulators’ time to do nothing may be quickly running out.

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