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Million dollar suburbs soar in the wake of Australia's housing boom

Andreea Papuc

The number of Australian suburbs where homes command a median A$1 million ($762,000) price has surged in the wake of a four-year long housing boom driven by declining interest rates and demand from investors.

Suburbs nationwide where the median value is at least A$1 million jumped 29 percent to 613 in the year ended June, and more than doubled over the past three years, according to a report from real estate research firm CoreLogic Inc. Thursday.

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“The data highlights the bracket creep that has occurred over the housing growth cycle, and how housing affordability in New South Wales (Sydney) and to a lesser degree Victoria (Melbourne) has deteriorated,” Cameron Kusher, a research analyst at CoreLogic, said in the report.

Home prices nationwide have soared almost 40 percent from a low in May 2012, underpinned by investors, who faced with low returns from other asset classes took advantage of record low interest rates and a favorable tax system for landlords to pile into the property market.

The report highlights:

  • New South Wales state, where Sydney is located, has just over 68 percent of all national suburbs with a median home value of at least A$1 million, up from 60 percent in 2008
  • Victoria state, with Melbourne as the capital, increased its proportion of million-dollar suburbs to almost 17 percent from about 14 percent in 2008
  • The proportion for Queensland and Western Australia declined as the end of the mining investment boom depressed home prices in those state.

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Surging prices have dented affordability and prompted banks to tighten lending criteria, with the pace of price growth moderating this year. Still, mortgage rates at the lowest in more than five decades are seen supporting demand going forward.

The Reserve Bank of Australia on Tuesday cut its benchmark interest rate by a quarter point for a second time this year, to a record 1.5 percent, and Australia’s four major banks passed on a portion of that to their mortgage customers.

“While overall housing demand may be slowing a little, we expect that with historic low interest rates, demand for premium housing is set to remain buoyant over the coming year," Kusher said. He said that he expects even more suburbs to surpass the psychological A$1 million mark over the next 12 months.