The nation’s major cities might have seen property prices fall since the Reserve Bank of Australia started lifting interest rates in May 2022, but there are now convincing signs the downturn is over.
That’s after CoreLogic’s national home value index rose for the second month in a row, gaining 0.5% in April, following a 0.6% increase in March.
Once again, the recovery was led by Sydney, where prices increased 1.3% – followed by Perth (0.6%), Brisbane (0.3%), Adelaide (0.2%) and Melbourne (0.1%).
CoreLogic research director Tim Lawless said prices were stabilising or rising across most parts of Australia, with other indicators confirming the positive shift.
“Auction clearance rates are holding slightly above the long-run average, sentiment has lifted and home sales are trending around the previous five-year average,” he said.
Economists declare downturn “largely over”
The strengthening property market hasn’t gone unnoticed, with some major economists upgrading their market forecasts as a result.
For instance, AMP Capital chief economist Dr Shane Oliver said the investment firm’s previous prediction of a “top-to-bottom fall of 15-20%” is looking “too pessimistic”. Rather, he now believes prices will stay flat or rise slightly over the year, with 5% growth tipped for 2024.
Westpac chief economist Bill Evans also believes “Australia’s housing markets are showing convincing signs of stabilising” and declared the downturn “largely over”.
As the table below shows, this, in turn, has seen the major bank update its dwelling price forecast with prices expected to remain flat this year (up from a 7% decline) with a 5% increase pencilled in for next year (up from 2%).
Senior economists at ANZ also think “we’re past the worst for housing prices”, with the major bank predicting Sydney house prices to rise 2% this year with Perth lifting 1%.
The picture is even brighter for 2024 with every capital city seeing a bump in prices, led by Brisbane with 5%.
What’s driving the rebound?
As Tim Lawless noted, the nascent market recovery is happening despite higher interest rates and is a “stark reminder that the performance of housing is influenced by a broad range of factors that go well beyond interest rate settings”.
So what’s driving it?
Well, several factors are at play, including increased migration, rising construction costs and low levels of advertised supply. These are all contributing to a relative decrease in supply and increase in demand.
ANZ senior economist Felicity Emmett said this supply-demand imbalance had trumped the impact of higher mortgage rates over recent months.
“New listings are 20% below the five-year average and total listings are at their lowest since 2010, so people are just not putting their homes up for sale,” she said.
“At the same time, we have an incredibly tight rental market that’s probably pushing some people from that market into the homebuyer market. We also have record rates of immigration which all combined to more than offset those higher interest rates.”
This imbalance will likely persist for some time yet, with the National Housing Finance and Investment Corporation recently forecasting a 106,000 housing shortfall over the five years to 2027 in its flagship State of the Nation’s Housing 2022-23’ report.
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