Australian Home Values Surge Amidst Economic Headwinds

In an unexpected twist to the ongoing narrative of economic pressures, Australia’s housing market has shown remarkable resilience, with home values climbing for a 14th consecutive month. Despite the challenges posed by high interest rates and significant cost-of-living increases, the demand for housing continues to outpace supply, leading to a steady rise in property values across the nation.

According to a recent CoreLogic report, home values across Australia saw a 0.6% increase in March, marking a subtle acceleration from the 1.4% rise observed in the December 2023 quarter to 1.6% in the first quarter of 2024. This trend comes as a surprise to many, considering the plateauing of property values late last year. CoreLogic’s research director, Tim Lawless, notes, “Rate hikes, cost-of-living pressures, and worsening housing affordability are all factors that have contributed to softer housing conditions since mid-last year,” adding that “an undersupply of housing relative to demand continues to keep upward pressure on home values despite these headwinds” (Clun, 2024).

The growth in home values was not uniform across all capital cities, with Perth leading the charge with a 1.9% increase, followed by Adelaide and Brisbane with 1.4% and 1.1% rises, respectively. In contrast, cities like Canberra, Sydney, and Hobart experienced more modest growth rates. Melbourne remained stagnant, the only capital to record a negative quarterly movement, highlighting the diverse factors influencing housing markets across the country.

Lawless attributed the variation in housing value outcomes to significant differences in housing affordability, demand-side pressures from population growth, and shortcomings in housing supply. He warned that without a significant increase in building approvals, Australia is likely to face an undersupply of housing for several years. The federal government’s ambitious goal to build 1.2 million well-located homes in five years is set to commence on July 1, yet January saw only 12,850 homes approved for construction, significantly below the required rate to meet this target.

The CoreLogic report also sheds light on the impact of overseas migration, which peaked last year, adding 548,800 people to the Australian population. With only 173,993 new homes completed during the same period, the imbalance between supply and demand is set to continue, further exacerbating the housing shortage.

Despite these challenges, economists are optimistic that the November interest rate rise to 4.35% will be the last, with expectations of rate cuts in the second half of the year as inflation begins to wane. This could enhance borrowing capacity for home buyers and improve consumer sentiment, potentially sustaining the growth in home values throughout the year.

As Australia navigates these complex economic waters, the resilience of its housing market serves as a testament to the underlying strength of demand and the critical need for an increase in supply to meet the housing needs of its growing population.

References:

Clun, Rachel. “Australia’s Home Values Keep Rising Despite Cost-of-Living Pressures.” https://www.smh.com.au/property/news/australia-s-home-values-keep-rising-despite-cost-of-living-pressures-20240401-p5fggg.html