Australian Home Prices Continue Upward Trajectory Despite Economic Challenges

As home prices in Australia persistently climb for the fourth consecutive month, experts are pondering whether the nation’s property market is defying gravity. Despite the affordability crisis and highly indebted households, Australian property values continue to rise, buoyed by a significant squeeze on housing supply, according to recent reports by Reuters and property reporter, Kenji Sato.

Australian home prices rose 1.1% in June, led by the country’s largest city, Sydney, which experienced a 1.7% surge, while Brisbane followed closely behind with a 1.3% increase. This upward trend comes despite housing affordability issues that have recently hit all-time lows, as reported by Reuters.

Tim Lawless, a property consultant with CoreLogic, attributes these price rises primarily to a lack of supply. He notes that “the flow of new capital city listings was nearly 10% below the previous five-year average” in June. While the prices show a broad-based upswing, growth in most capitals has started to slow, possibly reflecting changes in sentiment as interest rate expectations revise higher, Lawless added.

Real estate analysts, including Tim McKibbin, the Chief Executive of the Real Estate Institute of New South Wales, maintain that these home prices will continue to rise despite the potential ‘rate pain’ on the horizon due to high inflation. McKibbin asserted that “the property market is defying gravity. Despite there being increased interest rates we are seeing property prices continue to go up”.

According to Kenji Sato’s report, Australia’s property values continue to climb despite a high cost of debt and twelve rate rises since May of the previous year. The Reserve Bank of Australia’s surprise decision to hold the official cash rate at 4.1% rather than raise it has caused a stir.

However, there is caution on the horizon as market vulnerability to future rate hikes, weaker economic conditions, and stretched household balance sheets remains. Lawless warns, “It’s hard to imagine the recent pace of growth in housing values being sustained while sentiment is close to recessionary lows and the full complement of borrowers are yet to experience the rate hiking cycle in full”.

One of the contributing factors to the home price increase is the tight rental vacancy rates, which are below half of the pre-pandemic average. CoreLogic’s report indicates that landlord profit margins are rising well above the pre-Covid growth rate2. But Lawless believes that rent hikes will eventually taper off due to affordability pressures.

Given these complexities, the Australian housing market remains a field of continued uncertainty and speculation. Home prices continue to rise despite numerous economic challenges, a dynamic that will be important to watch moving forward.

References:

Reuters, “Australian home prices climb for fourth month in June” ↩ https://www.reuters.com/markets/australian-home-prices-climb-fourth-month-june-2023-07-02/

Kenji Sato, “House prices expected to continue to climb following pause in interest rates” ↩ https://www.abc.net.au/news/2023-07-04/house-prices-hike-despite-high-rates/102561278