Latest NewsBust Edges Back to BoomFriday, 26 August 2016

The property market is back, or so we've been led to believe by a recent run of data that shows property prices across the nation have been increasing over the past year.

In part aided by the first-home buyer grant at the lower end and lower interest rates for all buyers, house prices, as measured by the RP Data-Rismark Hedonic Australian Home Value Index, rose by 0.9 per cent in May and 1.6 per cent in the year to May.

The chief economist at CommSec, Craig James, points out that in the first five months of this year, prices grew by a rate that translates to 9.4 per cent a year.

James says it's a simple demand versus supply equation the demand for houses is increasing but supply is steady.

"Australia continues to experience an undersupply of homes through lack of building over recent years," he says.

It's this undersupply that has been pushing rents higher, particularly in major metropolitan cities. However other data also out last week shows that renters' ability to absorb rent increases does have a limit.

Australian Property Monitors' rental series found that for all leading cities, except Darwin, there was zero growth over the June quarter in median asking rents for houses. The researchers label this "the most significant shift" in the rental market since they started compiling the series.

"Rental growth has stopped dead in its tracks across the country as the effects of a weakening employment market and an increase in alternative ownership options have left renters much less willing to accept further increases in weekly rents," APM economist Matthew Bell says.

The picture is a little rosier for landlords in the unit market, with median weekly asking rents for units rising slightly in Sydney and Melbourne and by as much as 7.5 per cent in Darwin over the quarter.

With interest rates so low and the first-home buyer grant still available in some form or another, some renters may decide to purchase a home instead of absorb a rent increase if the landlord decides to get bolshy.

In fact, the median Sydney rental price of $420 would service a 25-year home loan of $300,000 at 5.24 per cent.

But the stagnation in rents could be short-lived. Vacancy rates are still low and, as any prospective renter in a big city will tell you, it's still pretty hard to secure decent accommodation cheaply.

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