Australia’s Housing Market Defies Gravity
Despite a series of 13 interest rate hikes by the Reserve Bank of Australia, amounting to a 4.25% increase over the past 18 months, the Australian housing market is not only holding steady but has experienced a resurgence since early 2023, confounding predictions of a significant decline.
The peak-to-trough change in Australian house prices, as reported by Corelogic and PropTrack, stood at 9% and 4% respectively, challenging analysts who anticipated a more substantial drop of 15%, 20%, or even 30% in response to rising interest rates.
Experts now assert that the property markets have transitioned into the recovery phase of the property cycle, aided by lower listing volumes, which means fewer properties are available for sale, preventing further downward pressure.
Concerns about a potential “fixed rate cliff” ahead are alleviated by Reserve Bank of Australia data, indicating that most of the mortgage debt is on variable terms. Many homeowners have proactively paid down their mortgages during the low-interest rate period, and a significant number have already refinanced.
Despite inflation peaking and the likelihood that interest rates have also reached their zenith, consumer confidence is expected to return gradually, sustaining the upward trajectory of the housing market. However, experts caution against anticipating a swift recovery, emphasising that market dynamics will be fragmented.
The rental crisis in Australia shows no signs of abating, with rents expected to continue skyrocketing this year. A survey of 13 economists indicates that national property prices are set for an annual rebound of 7.7% in 2023, recovering from a 4.8% decline in 2022. The median estimate suggests a further 4.5% increase in 2024.
This unprecedented recovery is occurring against the backdrop of the Reserve Bank of Australia’s most aggressive tightening cycle in over 30 years, marked by a 4-percentage point increase in interest rates over 14 months.
Goldman Sachs Chief Economist for Australia, Andrew Boak, notes the resilience of the Australian housing market to higher interest rates, and there is optimism about growth forecasts for 2023 and 2024.
The Reserve Bank of Australia, taken aback by the strength of the property market, is contemplating further measures. The bank’s vigilance on inflation, exacerbated by higher oil prices, suggests a potential final hike to 4.35%, although money market pricing implies the conclusion of the tightening campaign.
The surge in house prices is attributed to a combination of a severe supply shortage and a post-pandemic population surge following the reopening of immigration gates.
Economists’ positive outlook is further supported by an update to CoreLogic’s methodology, leading to upward revisions in pandemic-era home price gains and a reduction in the peak-to-trough decline.
The robust Australian economy, coupled with historically low unemployment rates, provides a foundation for continued housing demand. CoreLogic Economist Eliza Owen anticipates a continued rise in housing values in the near term.
As the nation’s property prices approach record highs, the housing market’s resilience raises questions about the effectiveness of the Reserve Bank’s tightening measures and prompts considerations for future policy adjustments.
Amid this housing boom, first-home buyers face persistent challenges, grappling with unaffordable prices and reduced borrowing capacity due to higher interest rates. Despite the obstacles, hopeful homebuyers like Justine and Kester Rozario remain optimistic about navigating the evolving landscape of Australia’s housing market.
