Australia’s property market has bounced back with a bang in the wake of the COVID-19 policy response.

With interest rates anchored at rock-bottom levels while savings rates surge, house prices closed out 2020 with three straight monthly gains.

And CoreLogic’s national home value index showed that momentum continued into the new year, as prices rose nationally by another 0.9 per cent in January.

Source: CoreLogic

Like the December results, a notable theme is emerging as property prices in regional areas of Australia’s largest states are ripping higher at a rate three times that of the capital cities.

“Internal migration data shows more people are leaving Sydney and Melbourne for regional areas, resulting in a transition of activity from the metro regions to the outer fringe and regional markets,” said Tim Lawless, CoreLogic’s head of research.

The trend is being exacerbated by the pandemic-related pause on international migration, where the majority of new arrivals typically settle in Sydney and Melbourne.

A clear discrepancy has also emerged between the value of houses and units, with detached dwellings rising by 3.5 per cent over the past six months while the value of units stayed flat.

So, with property prices at new record highs — where to from here?

Lawless said the stage is now set for “further price rises throughout the year”.

“Low interest rates have been a key factor in supporting the housing market recovery,” Lawless said.

On that front, the RBA is on deck later today (2:30pm AEDT) for the first time this year with its latest rates announcement.

Heading into Christmas, the bank was pretty adamant that rates aren’t going anywhere this year (or next).

And Lawless doesn’t expect that to change, given the central bank is still some way from achieving its objectives with unemployment and inflation.

If house prices continue surging, more macro-prudential measures from bank regulator APRA could also be in store.

The last round of macro-pru, initiated in March 2017, proved effective at putting the brakes on investor lending and taking some heat out of property prices.

However, “a trigger for another round of macro-prudential intervention is not apparent”, Lawless said.

Previous rounds of macro-pru were implemented when loans typically allocated to investors, such as interest-only loans, rose to levels that made regulators uncomfortable.

But a key feature of the post-COVID rally in Australia’s property market is that growth in new lending is being driven primarily by owner-occupiers.

Along with rising house prices, a home lending boom is underway.

Housing finance data from the ABS showed showed loan growth ripped higher by 31.2 per cent in December, largely due to a 38.9 per cent surge in lending to owner-occupiers.

And leading economist Alex Joiner from IFM Investors reckons the RBA will have at least something to say on that front later today:

But for now, barring an unforeseen surge in COVID-19 cases, Lawless reckons the upward trajectory of Australia’s housing market is set to continue into the near term.