Australian house prices continue to rebound, rising 0.7% since bottoming on 7 February, driven by a strong 1.5% rebound across Sydney:
The rebound in home values has arisen despite two consecutive 0.25% interest rate hikes from the Reserve Bank of Australia (RBA) in early February and March.
Australia’s property market is suffering from an acute shortage of listings, with new listings tracking around 12% below the previous five-year average and and overall stock tracking around 20% below average:
This scarcity of listings, combined with extreme immigration levels and soaring rents, has caused auction clearances to bounce, helping to support prices:
SQM Managing Director, Louis Christopher, expects the housing market to experience a “firm recovery” for the rest of 2023 if the RBA leaves the cash rate on hold.
“We’re close now to the peak cash rate. However, if the RBA has any new evidence of accelerating inflation, they’ll have to keep lifting rates and that’s where the [housing] market enters into a danger zone of a double-dip downturn. And we have a hard landing in the economy”, Christopher told The AFR.
“If the RBA does pause in this coming meeting or the one in May, I have no doubt the housing market will go into firm recovery for the remainder of the year”.
I still expect the RBA to start cutting rates late in the year.
If that happens, 2024 is shaping up to be a boom for house prices given:
- Falling interest rates will lift borrowing capacity;
- APRA is likely to follow suit by reducing the 3% mortgage buffer, which will further boost borrowing capacity;
- Australia is experiencing record immigration;
- The rental market will tighten further; and
- Housing construction will be depressed.
There is clearly fundamental demand in the market. The only thing holding prices back is high mortgage rates.
