The buy signal arrived at the beginning of 2013. Since then prices have been rising again in most capital cities, but especially so in Sydney, which dominates the capital city housing prices indexes. I have updated my chart to reflect this year's data, and extrapolated with predictions for December 2013.
So why is this relevant now?
Because many people who correctly called the overvaluation of Australian housing prior to the financial crisis have ignored the massive transition that occurred during the past five years. The slow melt really did let out the air from the bubble.
Now we have a situation where just about every Australian economic commentator is picking sides in discussion about whether this year's price gains are a new bubble. A former bubble denier has even switched sides.
So why if the data is so plainly showing that we are very far from a bubble, and in fact prices are relatively low right now, why isn't it obvious to everyone? I can think of just a few reasons for confusion.
- Australian house prices are still high when compared internationally. This argument doesn't really have much merit. Our wages are also higher, and this is reflected in higher rents, which determine the returns on housing assets.
- Individual homes in established suburbs seem to keep increasing in price. But this ignores that the relative position of these homes increases as the city grows. Thus what was last decade's cheap fringe suburb in next decades desirable urban location.
- Anchoring bias. $1,000,000 is still seen as some kind of benchmarks of obscene wealth. Yet, the repayments on this loan amount are about 20% lower now than during 2005-2008, while household incomes are up significantly.
Today's news is that Sydney and Melbourne home prices are up over 5% for the September quarter. Yes, this is a new cycle, but we are only at the beginning and I believe it will be milder in nominal terms that previous cycles.