Australia house prices surge, fastest pace since May 2010

real estate Australia — A newly-constructed home is listed for sale on an advertising board in the Sydney suburb of Greenhills Beach, Australia, August 2, 2016. Reuters/Jason Reed

House prices in Australia surged the most in seven years last month. Average home values in the country’s eight state and territory capitals rose 12.9 percent in the 12 months through March, which marked the fastest pace since May 2010.

Based on a data released by CoreLogic Inc. Monday, Australia’s housing boom is being led by Sydney, the state that experienced the highest surge in house values since November 2002 during the last 12 months. Home values in Sydney rose 5 percent in the first three months of 2017.

Hobart and Darwin recorded the strongest growth in prices at 3.1 percent, while Canberra and Perth surged 1.4 percent and 1.0 percent respectively. Adelaide and Brisbane had more increases of 0.4 percent and 0.2 percent. The latest data indicates that the strength in the Sydney and Melbourne markets are now spreading across Australia.

The news comes amid concerns that runaway price growth is stoking a housing bubble, which prompted the country’s banking regulator to tighten lending restrictions. This means home lenders would need to limit interest-only loans, which are usually favoured by housing investors, to 30 percent of total new residential mortgages.

Tim Lawless, CoreLogic head of research, said the curb may “contribute towards cooling some of the exuberance being seen in the largest capital city housing markets.” The Australian Prudential Regulation Authority said there could be a heightened risk caused by the combination of high property prices, record household debt, slow wages growth and little interest rates.

Lawless said the surge in high prices across the country reflects strong demand, as well as lower-than-usual supply for sale. “Low listing numbers continue to create urgency for buyers with the number of properties being advertised for sale remaining low,” he said. He explained that all the capital cities currently have fewer residential properties advertised for sale compared to last year. Along with strong demand, it is helping to stoke price growth in Australia house prices even more.

Central bank Assistant Governor Michele Bullock assured that regulators are “prepared to do more if needed” while Australian Securities & Investments Commission Chairman Greg Medcraft described the property market as “bubbly.”

Bloomberg notes that the surge is driven by buoyant investor demand, rapid population growth and record-low interest rates. At the end of June, the population of greater Sydney topped 5 million, having added 1 million people in the last 16 years according to the Australian Bureau of Statistics.