Home price growth in Melbourne is expected to hit a record high in July after values jumped 4.8 per cent in just 30 days, up from 2.9 per cent growth in June.
In Sydney, house prices are expected to rise 3.2 per cent for the month, compared to 2.8 per cent in June, according to figures to be released by CoreLogic RP Data on Monday.
The figures will confirm another strong month of housing price growth in July in Melbourne and Sydney, but with growth outside the two cities remaining weak.
The biggest previous increase in Melbourne values was in July 2014, when home values grew 3.7 per cent.
The last time Sydney home values grew more than 3.2 per cent was in September 2009, when growth hit 3.4 per cent.
CoreLogic researcher Tim Lawless said the rest of Australia’s capital cities were expected to record flat results, with Adelaide home values set to recede.
Overall, capital city price growth outside Sydney and Melbourne is expected to be less than one per cent.
“Growth over the last quarter has been very strong despite the May figures being very soft,” Mr Lawless said.
“The monthly figure can be volatile, so we prefer to look at the trend, but even that looks quite strong.”
The big increase in home values is likely to generate more concerns about housing affordability.
Adding to the gloom for capital city buyers today was the Housing Industry Association affordability index, which fell in the June quarter, meaning houses became less affordable.
“The positive impact of a second interest rate cut for the year in May was overwhelmed by an increase in the CoreLogic RP Data median dwelling price and the persistence of sluggish earnings growth,” HIA chief economist Harvey Dale said.
“The net negative impact of these factors saw the affordability index fall by 2.9 per cent to 79.7 in the June 2015 quarter.”
However the index masks wide variations around the country, Dr Dale said.
Sydney and Melbourne drove a 3.6 per cent decline in affordability in capital city markets, while there was a 2.7 per cent improvement in regional Australia.
“The large differences in the results for the capital city affordability index and its regional counterpart, together with the variation in outcomes between capital cities, exposes the folly of sweeping generalisations which refer to an Australian housing boom,” Dr Dale said.
“That is simply not what is occurring — in many parts of Australia the extremely low interest rate environment is delivering historically favourable affordability conditions.”
Earlier this month the Reserve Bank said housing affordability issues weren’t particularly alarming, with home ownership rates neither “unusually high nor unusually low” compared to other countries.
But the central bank said the stable rates of home ownership had masked a decline among younger Australians, which it attributed to demographics, widening income inequality and an increase in investor demand for property.
The lower rate of home ownership by younger Australians was not, however, necessarily due to rising prices, with the share of average household income required to service a loan on a median-priced dwelling well below previous peaks and within the historical 20 per cent to 30 per cent range, the bank’s economists found.
Nevertheless, the RBA said it was time to reconsider negative gearing as part of a wholesale review of taxation, and suggested discounts on capital gains tax for property investments could be making housing more attractive for investors.
In another development today, figures showed housing investors have increased their debt levels by 10.7 per cent over the past 12 months.
That’s the fastest annual growth rate since early 2008, when turbulence in the world’s money markets would subsequently erupt into the global financial crisis later that year.
This article first appeared in The Australian Business Review