UPDATE: Surging home prices in Australia have effectively nullified the impact of recent interest rate cuts, leaving prospective homebuyers at a standstill. New data from property analytics firm Cotality reveals that median dwelling values soared by 1% in November, bringing the average home price to a staggering $888,941. This follows a sharp rise of 1.1% in October and 0.8% in September.
The findings, released on November 27, 2023, indicate that the housing market is showing signs of a potential shift. Tim Lawless, Cotality’s research director, noted, “It really looks to be a very mixed result, a two-speed market that’s starting to emerge once again.” This mixed performance is evident as growth in major cities like Sydney and Melbourne slowed significantly—Sydney’s growth dropped from 0.7% to 0.5%, while Melbourne fell from 0.9% to 0.3%.
Conversely, mid-sized capitals are witnessing substantial increases. Brisbane has become the second Australian city to exceed a median home price of $1 million, with a 1.9% increase bringing the median to $1,015,767. Adelaide mirrored this rise, while Perth surged by 2.4%. Prices in Canberra, Hobart, and Darwin also showed growth, rising by 1%, 1.2%, and 1.9% respectively.
This surge in housing prices coincides with escalating inflation, complicating future interest rate cuts by the Reserve Bank of Australia. Economists are now predicting potential rate hikes next year, dashing hopes of further relief for homebuyers. Lawless emphasized that “Sydney’s affordability and serviceability challenges will be shining through here,” suggesting that there may be a natural limit to how much prices can rise.
The impact of the 75 basis points of cash rate cuts since February is already diminishing. Lawless calculated that these cuts increased the borrowing capacity of a median-income household by $55,000, yet home values have since escalated by $60,000, effectively erasing any benefits from the cuts.
For renters, the outlook is even bleaker. Rents are rising across all capital cities, with the national rental index increasing by 5% over the past year—the highest annual growth rate in a decade. “It’s definitely bad news for renters,” Lawless stated, highlighting that vacancy rates are hovering around 1.5%, near record lows.
Australia is grappling with an ongoing supply shortfall, and development constraints are hindering government efforts to boost affordable housing and rental options. Demand is expected to soften as migration levels stabilize, with many renters opting to form larger households or remain at home to cope with rising costs.
As the housing market evolves, all eyes will be on the Reserve Bank for any signs of policy shifts that could affect homebuyer sentiment and affordability. The combination of rising prices and stagnant wage growth presents a challenging landscape for those looking to enter the market.
Stay tuned for further updates as this situation develops.
