Australians turn bullish on house prices

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Australian home values hit their highest level on record in May.

Australian dwelling values

The Westpac Consumer Sentiment index, released on Tuesday, showed that Australians have turned bullish on house prices, expecting significant appreciation in the period ahead.

As illustrated below by Alex Joiner from IFM Investors, house price expectations have surged to a cyclical high.

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Dwelling prices versus expectations

“With strong demand from population growth coupled with lower interest rates there is little doubt prices will continue to rise”, noted Joiner on Twitter (X).

According to Justin Fabo from Antipodean Macro, the “time to buy a dwelling” index has also increased, indicating a growing willingness among Australians to enter the market.

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Time to buy a dwelling

The growing bullishness among Australians is justified given two 25 bp cuts to the official cash rate have already been delivered and financial markets are tipping another three cuts this year.

Justin Fabo showed that a 100 bp reduction in rates would reduce the mortgage interest burden by around 1.5% of household disposable income.

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Household interest payments

Analysis published in The AFR also showed that house prices typically experience double-digit growth following a rate-cutting cycle:

Changes in house prices
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The Albanese government’s 5% deposit scheme for first home buyers will also come into effect from 1 January 2026, which will further stimulate demand and prices.

The combination of deep interest rate cuts and stimulatory government policies has ‘rigged Australia’s housing market to blow’.

This is an unmitigated disaster for affordability, which was tracking at record lows at the end of 2024, albeit before rates were cut.

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Housing affordability metrics

Australia’s total housing stock was valued at $11.3 trillion in May, equating to an average of $1 million per dwelling.

Australia is starting to resemble a housing bubble with an economy attached.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.