It's not just Australian economic growth that's heating up.
Led by a sharp acceleration in the nation's largest and most expensive market, Sydney, Australian house prices are also rising fast.
According to the latest Home Value Index released by CoreLogic RP Data on Wednesday, Australian capital city house prices jumped by 1.6% in May, leaving the increase over the first five months of the year at 5.0%.
Across the country, the median dwelling price now stands $580,000.
No slowdown whatsoever, bucking expectations from many parties earlier this year that house prices were due to stagnate.
Suggesting that Australia's high rise construction boom is starting to impact apartment values, the vast majority of the increase came from unattached house prices which jumped 1.8%, overshadowing a smaller 0.1% increase for units.
The gains in May were led by a hefty 3.1% increase in Sydney, taking the median dwelling price in Australia's largest city to $782,000. In just the past quarter prices in the city have jumped by an enormous 6.6%, leaving the gain over the past year at 13.1%.
Outside of Sydney, prices increased in all capitals aside from Perth, recording gains of between 0.1% to 2.5%.
Melbourne, previously the hottest housing market in the nation up until recently, saw house prices rise by 1.6%, taking the gains since February to 2.1%.
Although well below the pace seen in Sydney over the same period, prices increased by 13.9% from May 2015, the fastest annual pace across the country.
Of the the capitals, prices rose by 0.1% apiece in Brisbane and Adelaide, 0.7% in Darwin, 2.2% in Hobart and 2.5% in Canberra.
Perth, the capital most exposed to the fortunes of the mining sector, was the only capital to record a decline in house prices during the month, falling 2.7%. Over the past year prices have fallen 4.2%, mirroring the performance of Darwin's property market which has seen values decline by 3.5%.
From May 2012, house prices nationally have increased by 36.6%. Sydney, at 57.5%, recorded the steepest increase in prices over this period, outpacing gains of 39.4% and and 18.5% for Melbourne and Brisbane which took out second and third spots respectively.
The table below, supplied by CoreLogic RP Data, reveals the monthly, quarterly and annual change in house prices across Australia's capitals, along with the current median value in each city.
Tim Lawless, head of research at CoreLogic, suggests that an increase in investor activity ahead of the federal election likely contributed to acceleration in Sydney property prices in May.
"The extent to which investors are fueling the latest surge in Sydney home values is difficult to quantify, however housing finance data to March shows investors, as a proportion of all new mortgage commitments, have been trending higher since reaching a recent trough in November last year at 42.9%," says Lawless.
"The March data shows investors now comprise of 47.6% of all new mortgage commitments which is the highest proportional reading since August last year."
Over the proceeding two months, Lawless suggests there may have been even further investor activity in the market.
“Anecdotal evidence suggests investor numbers may have increased further from this time, with some lenders reversing the tighter lending requirements that were previously in place for investment purposes as growth in investor related credit tracks well under the APRA speed limit of 10% per annum,” he says.
While lower interest rates will likely support house prices over the medium term, it's debatable whether it was responsible for the sharp acceleration in prices across the country in May.
Instead one could argue that investor demand has been brought forward by a prospective change of government following the July 2 federal election.
In February ALP leader Bill Shorten unveiled plans to limit the negative gearing tax break to newly built housing and end it for existing homes, stating that he wanted to ensure a “level playing field for first home buyers competing with investors”.
As part of the announcement, he stipulated that existing policy would be grandfathered from July 1, 2017, more than a year from now.
Since that announcement lending to investors has accelerated while house prices in Sydney, a market that investors have traditionally favoured, have taken off.
It's only a theory that's yet to backed up by solid data, but it could be said that some investors may not waiting around to see whether the Labor party will take office.
There has also been a noticeable pickup in auction clearance rates across the country -- yet again led by Sydney -- over the same period.
"Auction clearance rates across the combined capital cities have remained stable and hovered around the high 60% to low 70% range since February this year," says Lawless.
"Sydney clearance rates remain firm, sitting at around the mid 70% mark over the past three weeks while Melbourne clearance rates now sit in the early 70% range.
"The high rate of auction clearance has demonstrated a remarkable bounce back after tracking below 60% during December with Sydney’s auction market recording a clearance rate as low as 52.9% in December," he added.
Upcoming housing finance data and auction clearance rates, along with CoreLogic's own Home Value Index, will be eyed closely by policymakers.
Should the recent trend continue, it will not only create an awkward policy position for the RBA in terms of interest rates, but could also prompt Australia's Banking regulator, APRA, to further tighten its oversight over investor lending.
Date: 2nd June 2016
Author: David Scutt