House prices are zooming

Sydney and Melbourne house prices continue to rise, perhaps encouraged by the two cuts to the official cash rate by the RBA so far this year.

According to CoreLogic, Sydney and Melbourne have seen house price gains of more than 5% over the past 3 months alone and over 11% compared to the same time last year.

It’s a different story in other states, with Brisbane/Gold Coast up 0.5% in the past quarter, and 4.6% in the past year. Adelaide’s performance is similar – up 0.5% in the quarter and 4.7% over the year. Perth continues to fall as it experiences the ongoing effects of the mining slowdown. House prices in the city are down 4.3% in the past year, with Darwin experiencing similar falls.


Source: Core Logic

However, readers may want to read those stats with a grain of salt, with the Reserve Bank of Australia singling out CoreLogic saying that it had overstated price growth in Sydney and Melbourne.

Rival SQM Research shows Sydney house prices unchanged over the past 3 months and units up 1.1%.

Auction clearance rates have remained healthy as we head into the spring property selling market. Sydney had a clearance rate of 77% last weekend – slightly lower than the previous weekend’s 80%, according to Domain. Prior to last weekend, Sydney had seen 4 consecutive weekends of above 80% clearance rates.

Melbourne’s clearance rate was a solid 78% over the weekend, a similar result to previous weekends, despite a big jump in auction numbers from 718 to 846 homes.

With the banks including Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) offering mortgage rates of less than 5% (including discounts), it’s clear that debt is cheap and could be encouraging more buyers to wade into the property market.

It seems clear to me that the property market is booming – particularly when two-thirds of mid-week auctions are selling before the night and the rest sold in less than an hour. There are also reports that some houses in Sydney are selling for well above their reserves.

Foolish takeaway

It doesn’t look like a bubble in the property market, but there are still concerns over the number of apartments being built and the potential oversupply once they are released onto the market in the next few years.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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