Forget your post-Covid real estate hopes: Crazy real estate prices are the only certainty | Greg Jericho


The latest loan financing figures suggest that there has been a recent slowdown in mortgage lending, but it remains far from a “chill”. Meanwhile, while travel restrictions appear likely to be relaxed, the question remains how quickly our vacation spending will return to its old levels – or will we continue to buy furniture for a while?

As I have often noted, growth in home loans is a very strong indicator of house prices. And so, the news that the value of home loans in August fell 4.3% – the second biggest drop in three years – might lead people to think that some degree of reason is the return on our housing market.

Yeah, no.

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I realize that in these times we have to hold on to some kind of hope to help us get through the day, but although there has been a slight slowdown in the rise in home loans, the annual growth remains extremely high.

The current 47% annual growth in home loans is still higher than anything over the past 20 years, even though it is down from the truly absurd growth of 95% in May.

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What we are also seeing is that investors are returning strongly to the market – up 92% from August of last year.

Investors are generally less careful than homeowners when it comes to taking out mortgage loans because homeowners just want a home, while investors want to make a profit.

The fact that investor funding has increased in 14 of the past 15 months – the best since 2013 – suggests that investors strongly believe that the rise in real estate values ​​will continue.

The total value of home loans taken out in Australia in August was also far higher than before the pandemic, let alone last year.

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And so, alas, housing affordability is not about to improve anytime soon.

In New South Wales, the average homeowner mortgage for new and existing homes rose 20%, from $ 626,654 to $ 750,784.

When three-quarters of a million dollars is the average home loan, you know that not only have house prices skyrocketed, but people are also taking on massive debt.

Average lending was also up 20% in Victoria, and even the slower growth of 7% in South Australia was more due to a slight drop in August than to a weak market.

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One type of loan that returned to normal was auto credit.

Earlier this year, a near record number of auto loans were taken out. But that now appears to have been mainly to offset the drop that occurred in the middle of last year.

Those who postponed buying a car in 2020 simply returned to the market.

But after the correction, the value of auto loans has now returned to what it was in 2019.

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The same cannot be said for travel and vacation loans.

Here, of course, the question is not so much the state of the economy, but the actual ability to leave the country (or the state).

However, it looks like people haven’t kept the money they saved for a vacation in the bank for that rainless day when we can all travel again. On the contrary, they went to buy furniture and household items.

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When we see the massive increase in loans for household goods and personal items, it is no surprise to read reports on the significant profits of furniture and appliance retailers.

But with the reopening of international borders, the question remains how quickly will international travel pick up?

Initially, you would expect most trips to be for family reasons. But once vaccinations around the world hit 80-90% and worries abate, are we once again going to shift our spending (and borrowing) patterns to travel and away from furniture?

One thing seems certain, given the growth in mortgages, homes that you furnish or leave when you go on vacation seem to be worth much more than they are worth today.


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