The combined capital city home values according to the RP Data Core Logic Home Value index have increased by 10.9 percent over the 12 months and 18.7 percent in the current growth cycle.
It seems counter-intuitive that home values would continue to rise as strongly as they are with many economic indicators heading in the other direction.
What could possibly be causing this?
This can be partly be explained by the level of equity sitting in our homes. As at June 2014 the Australian Bureau of Statistics (ABS) estimated there were 9,366,800 residential dwellings across the country.
Over the 12 months to June 2014 RP Data estimated that 484,000 dwellings sold nationally. This represents that 5.2 percent of total dwelling stock sold over the past year.
To accurately calculate equity is difficult as there are no regular statistics available on home equity levels. Banks hold this data close to their chests.
So whilst the reduction in initial borrowing over time can’t be determined, we can determine how much home values have increase over time. This is a key element of how much wealth has been accumulated in a property.
As deregulation of financial markets has occurred, lending for residential housing has ramped up substantially. In turn, the cost of housing has increased and those who own a home or have a mortgage have seen a large rise in their equity.
The housing finance data from the Australian Bureau of Statistics (ABS) also shows that investment lending for new loans (this excludes refinances) has recently hit record levels.
The two driving segments of the housing market are investors and subsequent buyers (those upgrading or downgrading their principal place of residence).
Another factor contributing to the home value increases are the low interest rates. These effect investment decisions by making other asset classes less attractive.
With official interest rates sitting at 2.5% the amount of interest for cash sitting in the bank is very little and therefore investors have shifted their focus to slightly riskier asset-classes such as residential housing.
The relatively low cost of servicing a mortgage currently and the low returns on risk-free investment is attracting increasing investor activity to the housing market.