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Why Are Property Prices Forecast to Rise Even Though Home Loan Interest Rates are High?

Like London buses, you wait for ages for a positive property market forecast and then three come along at once.

First off the blocks was Domain.

In their forecast market report for the 2023-24 financial year, the property group anticipated a “well-established and steady recovery” for the Australian housing market with house prices in Sydney forecast to grow by as much as 9% between the start of June 2023 and end of June 2024 (see below).

Next came NAB, with the major bank forced to reverse its earlier prediction of a 4% fall in national home prices given the property market’s “surprising resilience”. As a result, NAB said it now expects the national market to grow 4.7% this year, with a further 5.0% pencilled in 2024.

Once again, Sydney is expected to lead the rebound with growth of 6.9% and 4.9% over the two years (see below).

Finally came PropTrack’s property market outlook report. This predicted national home prices to rise by as much as 5% this year, with most capital cities expected to see gains, with Perth, this time, the strongest performer (see below).

You might be wondering what’s going on, seeing that the Reserve Bank of Australia has hiked the country’s official interest rate 12 times since May 2022.

That’s because, generally speaking, the higher the interest rate, the less you can borrow for a home loan. This reduction in borrowing capacity should, in theory, dampen buyer demand, placing downward pressure on prices.

So just why are property prices forecast to rise given the current lending environment?

Well, to answer that question, you first need to understand what’s been driving the current rebound that’s already seen Sydney house prices recoup two-thirds of the value lost during the downturn, according to Domain.


Low supply, high demand

Home loan interest rates aren’t the only factor that drives the property market cycle; rather, property prices can be influenced by everything from population growth and economic conditions to federal and state government policies and incentives.

All these factors ultimately impact supply and demand within the property market.


  • Prices go up when demand outweighs supply
  • Prices go down when supply outweighs demand

Throughout 2023, there’s been a severe lack of supply in the market as would-be sellers held off from listing their properties.

By June, the total number of properties advertised for sale had plummeted 7.3% when compared to the same time last year, according to SQM Research.

SQM Research managing director Louis Christopher said this was driven by a significant fall in older listings.

“The decline in older listings could be as a result of higher absorption rates and we note that the calendar year to date has actually recorded higher than expected levels of total residential property sales turnover,” he said.

This brings us nicely to the next point. Because while there’s been limited supply, demand has been rising, fuelled by ultra-tight rental markets and the rapid recovery in migration.

This supply/demand imbalance has, in turn, offset the impact of the RBA’s interest rate rises.


Interest rates are at or close to their peak 

This is where it gets interesting.

That’s because many economists now think the RBA’s next move for interest rates will be down with:

  • Commonwealth Bank expecting the cash rate to remain on hold at 4.10%, with the first cut pencilled in for March 2024
  • Westpac expecting the cash rate to remain on hold at 4.10%, with the first cut pencilled in for the September quarter of 2024
  • ANZ expecting the cash rate to remain on hold at 4.10% for an extended period
  • NAB expecting one more 25-basis-point increase to take the cash rate to 4.35%, with the first cut pencilled in for August 2024

If home loan interest rates do start to fall next year, this should support the further uptick in prices in the forecasts outlined above.

What’s more, consumer confidence is slowly returning as inflation falls and ongoing interest rate hikes appear less likely, with the ANZ-Roy Morgan Consumer Confidence index recently recording its biggest two-week jump since April 2020.

Consumer confidence and housing activity go hand-in-hand, according to Tim Lawless, CoreLogic’s research director.

“Generally, when sentiment is low, home sales are low and vice versa; so, any lift in sentiment is likely to be accompanied by a rise in active buyers and sellers,” he said.

So what does this all mean for you?

Well, no one knows for sure if property prices will continue to rise. But if the forecasts do turn out to be on the money, Sydney’s median house price could increase to as much as $1.66 million by June 2024.

That would be an additional $120,000 from the June 2023 quarter median price.

This suggests that, if you’re in the market for a new home, now could be a good time to buy, if your circumstances allow.

Want to buy a property? Shore Financial can help you get a competitive home loan interest rate. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.


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