Australian Property Market Slows Down as Interest Rates Impact House Price Momentum

Australia’s property market appears to be losing steam, with house price growth slowing in July due to an increase in property listings. Experts suggest sellers are capitalising on the current market strength, including those under financial pressure from increasing interest rates. Data from property consultancy CoreLogic revealed that prices across Australia’s capital cities advanced 0.8%, a slight dip from June’s 1.2% pace (Business Times).

The housing market slowdown was predominantly influenced by the upper quartile of the market, which often signals the cycle’s direction. “This could be a sign of a broader easing in the pace of growth over the coming months,” stated Tim Lawless, research director at CoreLogic (Business Times).

The Reserve Bank of Australia (RBA) has raised its key interest rate to 4.1%, the highest since April 2012, potentially influencing the market’s slight cooling. Yet, despite high borrowing costs and the potential implications of future interest rate hikes, strong population growth and a supply shortage continue to drive price gains in the Australian property market (Business Times).

A potential rise in the cash rate is under debate among economists, with forecasts split. Fifteen economists predicted a rise of another 25 basis points to 4.35%, but 11 suggested the RBA would extend July’s pause for another month, according to a Bloomberg survey (Peter Hannam). Market observers are closely watching the RBA’s decision-making process as it balances the risks of maintaining high inflation for an extended period or potentially sending the economy into recession by over-tightening monetary policy.

George Tharenou, UBS’s chief economist, who accurately predicted the previous twelve RBA rate rises, believes another increase is imminent. However, he acknowledges the decision will be a “close call and finely balanced” (Peter Hannam).

Even as the property market shows signs of cooling, the housing rebound that began earlier this year continues. The three-month period leading to July saw prices in Sydney surge 4.5% for a median home value of A$1.08 million (Business Times).

However, increased property listings suggest a shift in sellers’ attitudes. “It may be the case that more homeowners are picking current market conditions as a good time to sell,” said Lawless. “Another possibility is that we are seeing the first signs of motivated selling as the rapid rate hiking cycle catches up with household balance sheets” (Business Times).

CoreLogic data revealed that housing values continued their recovery for a fifth consecutive month in July. Despite this, the pace of growth has slowed from 1.2% in May to 0.7% (Peter Hannam).

While these trends signal a potentially more balanced market ahead, Lawless reminds that “the trend in advertised stock levels will be a key factor determining housing market outcomes” (Business Times).

References:

Australia’s house-price momentum eases as property listings jump, Business Times https://www.businesstimes.com.sg/property/australias-house-price-momentum-eases-property-listings-jump 

Economists split over chance of August rate rise as Australian property price rebound slows, Peter Hannam https://www.theguardian.com/australia-news/2023/aug/01/economists-split-over-chance-of-august-rate-rise-as-australian-property-price-rebound-slows