Australia’s housing market has roared back to life, with property prices rising at the fastest pace in almost two years, fueled by anticipation of imminent interest rate cuts.
What’s Happening to House Prices in Australia?
New data from CoreLogic reveals national home values surged 1.3% over the February quarter, propelling the annual value growth rate to 8.9% – levels not seen since the dizzying peak of the property boom.
It marks a striking turnaround from late 2023 when soaring interest rates delivered a hammer blow to real estate markets. But with inflation now moderating and rate hikes potentially nearing an end, buyers have re-entered the market in force.
“After being largely sidelined amid the recent rate-hiking cycle, it’s the more affordable ends of the housing market that are now leading this resurgence in demand,” said Eliza Owen, CoreLogic’s head of research.
At the forefront has been the bottom 25% of the property market, with values surging 2.4% over the three months to February – more than quadruple the pace of the top quartile over the same period.
“Prospects of an imminent rate cut and opening up of more favourable lending conditions have spurred a new wave of buyer activity, with scores of budding homeowners capitalising on this newfound affordability window,” Ms Owen said.
Nowhere has this resurgence been more evident than in Perth, which led major capital gains with values skyrocketing 5.2% over the past quarter amid an extraordinary mining-led economic revival.
Regional Renaissance
Regional markets have also caught fire, with combined regional dwelling values soaring 2.9% – more than double the pace of the capital cities – as seachangers and tree-changers continue their pandemic-era exodus.
The revived market dynamism has been starkly reflected in sales volumes, which surged to over 500,000 nationally over the year to February – levels 8.2% above the previous five-year average across capitals.
Adding further evidence, CoreLogic’s auction clearance rate across the combined capitals hit a staggering 68.7% over the four weeks ending March 3 – a stark reversal from sub-55% readings just months earlier.
“The housing market’s abrupt renaissance points to a material improvement in sentiment and return of buyers over the past few months on the prospect of lower mortgage rates ahead,”
said Ms Owen.
“However, while this could represent a final kick before conditions become more subdued later in the year, significant affordability challenges remain for those looking to get a foot on the property ladder.”
Despite the recent upswing, housing still remains stretched on traditional measures of affordability. Nationwide gross rental yields rose to 3.73% in February – roughly in line with pre-pandemic levels – while the portion of first-home buyer loans remained elevated at over 28% of new owner-occupier lending.
“While improved conditions have provided a reprieve for existing homeowners, housing still presents major affordability hurdles, especially for aspirational first-time buyers,” Ms Owen said.
“Whether this newfound exuberance is sustained will depend on the inflation trajectory, which will ultimately determine where the Reserve Bank takes interest rates over the year ahead.”
Rental Market and Rental Growth in Australia
The rental market is experiencing a re-acceleration in growth early in 2024, with a notable increase in rental values.
February saw the monthly pace of change in rental values rise to 0.9%, which is the highest reading since March of the previous year. This rental growth has also led to the rolling quarterly change in rental rates increasing to 2.4%, marking the highest point since May of the last year.
While part of this uptick in the rental market is attributed to the seasonal trend that typically occurs in the first quarter of the year, there’s also an observable rise in the annual growth trend for rents.
Specifically, the national rental index, which experienced a recent low of 8.1% growth in October of the previous year, climbed to 8.5% over the 12 months ending in February. This indicates a sustained demand in the rental market, contributing to the ongoing rise in rental values across the nation.
More on House Prices in Australia
Are house prices in Australia dropping?
House prices in Australia are not currently dropping. While they experienced a decline in late 2023 due to rising interest rates, recent data shows a rebound.
As of March 2024, Australian house prices are experiencing a surge, with national dwelling values increasing 1.3% in the February quarter and reaching an annual growth rate of 8.9%. This marks a significant turnaround compared to the previous downward trend.
What are predicted house prices in 2025 Australia?
Predicting the future of house prices is inherently challenging. However, several sources offer insights into potential future directions:
- Experts anticipate a possible slowdown in the later part of 2024. Factors like potential interest rate adjustments and subdued economic conditions could contribute to this.
- Some forecast an increase in national house prices by the end of 2024. This prediction considers the current upswing and the possibility of a moderation in growth later in the year.
Will interest rates go down in 2024 Australia?
While some are predicting that interest rates will go down in Australia, the timing remains uncertain. Most predictions suggest a potential cut in interest rates later in 2024, possibly towards the end of the year.
The Reserve Bank of Australia (RBA) is monitoring economic factors like inflation. A decrease in inflation could prompt the RBA to lower interest rates to stimulate the economy.
Is there a rental shortage in Australia?
Yes, Australia is experiencing a rental shortage. This is particularly evident in most capital cities and regional areas with strong economic growth. Several factors contribute to the shortage:
- Increased demand: Population growth, particularly in desirable locations, puts pressure on available rental properties.
- Limited supply: New dwelling construction hasn’t kept pace with rising demand, leading to a shortage of rental options.
- Investor activity: A shift in investor focus towards short-term rentals like Airbnb can reduce the number of properties available for long-term tenants.
Why is rent increasing in Australia?
Rent is increasing in Australia because of the combined effect of the rental shortage and high demand. With fewer properties available, landlords have more leverage to increase rent prices. These are just a few of the reasons why the average rent is getting higher.
