Surging home prices across Australia have diminished the benefits of recent interest rate cuts, leaving new buyers grappling with affordability challenges. According to property analytics firm Cotality, home values increased by 1 percent in November, bringing the median dwelling price to $888,941. This follows a significant rise of 1.1 percent in October and 0.8 percent in September.
Market Dynamics Indicate Mixed Results
While the overall price growth remains steady, Tim Lawless, Cotality’s research director, noted that the November figures may indicate a shift in market momentum. “It really looks to be a very mixed result, with a two-speed market emerging once again,” he stated.
In major cities, the pace of growth has slowed. In Sydney, growth decreased from 0.7 percent to 0.5 percent, while Melbourne saw a drop from 0.9 percent in October to 0.3 percent in November. Conversely, mid-sized capitals have gained traction. Brisbane became the second Australian city to surpass the $1 million median home price, rising by 1.9 percent to $1,015,767. Adelaide also increased by 1.9 percent, and Perth accelerated to a growth rate of 2.4 percent. Other capitals, such as Canberra, Hobart, and Darwin, reported increases of 1 percent, 1.2 percent, and 1.9 percent respectively.
The surge in home prices coincides with rising inflation, impacting expectations around future interest rate cuts from the Reserve Bank of Australia. Economists and bond traders are now predicting potential rate hikes in the coming year.
Affordability Challenges Persist for Renters
Lawless pointed out that challenges related to affordability and serviceability in Sydney are likely placing a natural ceiling on price growth. “This may be the first sign that the markets are responding to the renewed acceptance that interest rates aren’t likely to fall further over the next six months,” he said.
The impact of the 75 basis points of cash rate cuts since February is beginning to wane. Lawless calculated that these cuts increased the borrowing capacity of a median-income household by $55,000, yet home values have risen by $60,000 during the same period.
For renters, the outlook is increasingly bleak. Rents have risen in every capital city, with the national rental index showing a 5 percent increase over the past twelve months—the highest annual growth rate in a decade. “It’s definitely bad news for renters, especially with vacancy rates hovering around 1.5 percent, which is virtually at record lows,” Lawless noted.
Australia continues to grapple with a significant supply shortfall in housing. Feasibility constraints for developers are impeding government efforts to increase the availability of social and affordable housing, as well as build-to-rent projects.
As migration levels begin to normalize, demand may soften somewhat. Many renters are opting to form larger households or remain in family homes longer to cope with escalating rental prices. The current trends highlight the ongoing struggle for homebuyers and renters alike in an evolving Australian housing market.
