Sydney home prices surged 3.6 per cent in March, the fastest monthly rise in 33 years, as buyers raced to take advantage of low interest rates and government incentives.

The last time Sydney hit more than 3 per cent monthly growth was in August 1988 when it surged 3.8 per cent, according to CoreLogic.

The CoreLogic March Index set to be released on Thursday is also likely to show Melbourne dwelling prices jumping 2.2 per cent, Brisbane 2.4 per cent, Adelaide 1.4 per cent and Perth 1.7 per cent.

The five capital city aggregate is likely to rise 2.8 per cent or an annualised growth of 33 per cent. This would be the strongest growth since October 1988 when the combined capital cities rose 3.5 per cent for the month or a 42 per cent annualised basis.

CoreLogic said the national index bottomed out last September, falling 2.1 per cent. Sydney hit its bottom in September, with Melbourne a month later.

The rapid price growth is causing concern even among industry players.

“I think the [Sydney] market is getting too hot, too quickly,” said Douglas Driscoll, chief executive of real estate group Starr Partners.

“The rapid rate of growth at the moment is scary. When you see some of the prices that are being achieved at auctions, they are mind-boggling. It makes no sense. Personally, I don’t believe this growth will be sustainable.”

Not based on fundamentals

Experts worry the current price growth is not supported by the fundamental dynamics of supply and demand.

“Prices are surging despite zero immigration, suggesting that at some point we’ll end up with a chronic oversupply because construction is kept at higher levels,” said Shane Oliver, AMP head of investment strategy and chief economist.

“Without immigrants coming in, the underlying demand will be running below supply which will lead to rebalancing.”

Louis Christopher, SQM Research managing director agreed the price increases are not driven by the lack of supply, but low interest rates.

“I’m concerned for the fact that the price gains are not based on population growth, so it’s not really based on fundamentals,” he said.

“We’re not seeing a massive shortage of established properties out there. There may well be a lot more buyers than sellers right now, but in terms of overall supply it’s still relatively healthy in the scheme of things.”

Growth to slow

Most experts expect the property markets will continue to rise in the months ahead, albeit at a slower pace after the JobKeeper, HomeBuilder and rental moratorium expire by the end of March.

“There is definitely a lot of market momentum in the March quarter, which is abnormal because this is usually a quiet quarter, but there’s also a lot of stimulus that’s going to be taken off the table all at once,” Mr Christopher said.

“So there is a chance that in the next quarter, we might not see such crazy growth.”

The prospect of APRA intervention later this year is also expected to curb the rampant price growth across capitals.

“In the absence of an interest rate hike, which doesn’t seem to be coming anytime soon, the most likely scenario is that sometime in the next six months we’ll start to see APRA starting to tamp down lending,” said Dr Oliver.

“At the moment they are saying it’s not their job to target house prices, but if growth continues at this pace, they will be forced to act.”

This story originally appeared in the Australian Financial Review. Read the original story here.

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