Australian Property Prices Rise for Second Consecutive Month; RBA Raises Interest Rate in Response to Rebounding Market

In a surprising turn of events, Australian property prices have risen for the second consecutive month, marking an end to the nation’s housing market downturn as interest rates appear to have stabilized. The Reserve Bank of Australia (RBA) recently raised its cash rate to an 11-year high of 3.85%, with the rebounding property market cited as one of the reasons for the increase, according to RBA governor Philip Lowe.

CoreLogic data reveals that the median value of homes sold across the country increased by 0.5% in April, following a 0.6% increase in March. Tim Lawless, CoreLogic’s research director, said that the market is stabilizing or rising across most areas of the country, with other indicators confirming the positive shift. “Auction clearance rates are holding slightly above the long-run average, sentiment has lifted, and home sales are trending around the previous five-year average,” Lawless added.

Despite the increase in house prices, rents continue to rise, with a 1.1% increase across the capital cities in April. Lawless attributed the increase in unit rents compared to houses to affordability, as well as additional rental demand from overseas migration, which is more pronounced in inner-city areas and precincts close to universities and transport hubs. He also noted a lack of supply contributing to the increase in unit rents and predicted a “chronic undersupply” in the coming years.

Governor Lowe’s comments on the rising property prices, which have been reported by CoreLogic, Domain, and other data services, indicate that the central bank is paying attention to the way households adjust spending according to their perceived wealth. Moreover, Lowe mentioned the increasing rental prices and the limited supply of rental properties. “Rental price growth continues to increase in Sydney and Melbourne, with both cities recording their strongest annual rises since 2012,” the Australian Bureau of Statistics stated last week.

The Australian housing market outlook remains uncertain and depends on interest rates. As Lawless said, “until we see rental demand and rental supply becoming more evenly balanced, rents are going to keep trending higher”.

References:

Ainsworth, K. (2023). House prices rise for the second month in a row as rents keep rising due to low vacancy rates. Retrieved from https://www.abc.net.au/news/2023-04-30/corelogic-house-prices-rebound-interest-rates-housing-market/102284450 

Hannam, P. (2023). Philip Lowe says rebounding property market among reasons for shock RBA rate increase. Retrieved from https://www.theguardian.com/australia-news/2023/may/02/philip-lowe-says-rebounding-property-market-among-reasons-for-shock-rba-rate-increase