CoreLogic’s figures revealed dwelling values had risen by 8.3 per cent in regional Victoria and by 11 per cent in regional NSW over the past year.
The big cities now appear to be catching up, with the median price of a standalone house in Melbourne rising an eye-watering $3600 a week during the December quarter to tap a record $936,000.
Sydney prices shot even further ahead, with the median gaining $4200 a week during the past three months of 2020 to hit a record $1.21m, Domain Group figures showed.
The nation’s biggest mortgage lender, Commonwealth Bank, forecasts house prices in Sydney and Melbourne will rise by at least 12 per cent over the next two years and Australians borrowed $28.75 billion to purchase housing in January, 44 per cent more than a year earlier.
“The heat in the housing market is really intensifying,” said ANZ economist Felicity Emmett.
But the strength of the price rally has stoked worries.
“It’s a bit of a blast-off in house prices,” said AMP Capital economist Shane Oliver.
“But obviously it will, at some point, raise questions about housing affordability.”
The housing market has emerged in the past decade as a demographic battleground where first-time buyers compete against cashed-up investors who benefit from negative gearing and the capital gains discount, while an army of young renters is left wondering if they will ever own a home.
Grattan Institute economist Brendan Coates said the latest surge in prices continues a 25-year trend that divides housing haves and have-nots.
“Home ownership has been falling for all age groups under 65, particularly for younger lower-income households and what’s happening now will only exacerbate that trend,” he said.
“If house prices keep rising relative to incomes, it’s going to become harder for young people, especially those on lower incomes, to purchase a home.”
While there has been an encouraging lift in borrowing by first-time buyers in recent months, Mr Coates does not expect it will have much effect on the overall level of home ownership.
“Some first home buyers have made gains recently, but the reality is the bottom 40 per cent of income earners are priced out of most of our major cities,” he said.
The main driver of the post-pandemic property boom has been record low interest rates. During the past 18 months the official cash rate has been cut from 1.25 per cent to just 0.1 per cent and the central bank has made it clear those low levels will remain in place for an extended period to underpin the economic recovery.
Mr Coates says we should not be surprised that house prices have surged given rate cuts of that magnitude.
He points to Reserve Bank modelling published in 2019 that found a sustained reduction in interest rates of 1 percentage point would lift housing prices by 30 per cent over about three years.
Rates are not the only factor driving prices north, with pent-up demand, government incentives, an improving post-pandemic economy and even a fear of missing out all playing a role in stoking the boom.
Detached house prices are leaving unit values behind, with Melbourne’s median house price now 64 per cent higher than the median unit price, Domain Group data revealed, well above the average price gap of 52 per cent over the past decade.
Would-be owner-occupiers have been driving demand so far, but the latest lending data shows investor interest in housing is now on the rise.
But worries are starting to emerge, with Victorian Treasurer Tim Pallas last month raising the possibility of an overheating market and ANZ Bank chief executive Shayne Elliot warning of “social and political problems” if prices continued to rise at an unsustainable pace.
Reserve Bank governor Philip Lowe told a parliamentary committee last month the recent strength in house prices had been helpful for the economy as it recovers from recession, bolstering consumer confidence and spending.
He said authorities were “watching closely”.
But Dr Lowe said the RBA would not lift interest rates in a bid to rein in the property market.
“The RBA does not – and should not – target housing prices,” he said.
Financial authorities can take a range of other steps known as “macroprudential” regulations to ensure financial stability, including caps on bank lending to certain borrowers or requirements for bigger deposits from home buyers.
On Wednesday, the Council of Financial Regulators sent a message to lenders in Australia, reminding them to maintain “sound” lending standards, “particularly in an environment of rising housing prices and low interest rates”.
The council also said it would “closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase”.
ANZ’s Ms Emmett expects regulators will intervene to curb lending later this year.
“That’s when we think they will step in to slow things down a little bit,” she said.
But back at Waltham Street, Mr Currie is confident the buyers will be out in force again this weekend, with the steep curve in house prices likely to remain for a little while yet.
“I think for the rest of the year we’ll see a market continuing to gain momentum,” he said.
“It’s not going to go backwards.”
Noel Towell is Economics Editor for The Age
Matt Wade is a senior economics writer at The Sydney Morning Herald.