House prices are rising nationally.
Home prices have recovered strongly since January, to the surprise of industry and banking experts. Image by Lukas Coch/AAP PHOTOS
  • politics

Housing rebound eyes new mark but rates threat looms

Poppy Johnston November 1, 2023

Australia’s housing market is about to sail past its previous record high, but the possibility of another cash rate lift and an injection of new properties for sale could keep future growth in check. 

The housing market experienced a steady downturn throughout much of 2022 as interest rates started going up. 

But since January, home prices have recovered strongly, to the surprise of the Reserve Bank governor and many others. 

The home value index released by real estate data firm CoreLogic is now half a per cent below its high reached last year, with several markets – including Brisbane, Adelaide and Perth – already finding new peaks. 

Nationally, the index lifted 0.9 per cent through October, up from 0.7 per cent in September.

Darwin was the only capital to record a monthly decline in October, with combined regions also growing strongly.

National home prices have already breached their former record high based on a separate index put together by PropTrack.

Yet CoreLogic research director Tim Lawless said the recovery in national home values was slowing when viewed quarter to quarter.

Mr Lawless said more stock was coming on the market, boosting choice for buyers. Stretched affordability was also keeping a lid on growth.

A limited supply of advertised homes had been playing a key part in the rebound but had already started picking up through winter – unusual for that time of year – with the seasonal peak still to come in late November.

Paired with another interest rate rise, which is now widely expected to beat uncomfortably persistent inflation, further heat may come out of home price growth. 

“This will be a real test for the market,” Mr Lawless said.

Another interest rate hike will make it harder to access credit, with an owner occupier assessed to repay their loan at almost 9.5 per cent if rates lift a further 25 basis points, factoring in the three percentage point serviceability buffer.

“Whichever way you look at high inflation and interest rates, it means less buying demand in the marketplace.”

The rapidly recovering property market is also a concern for the RBA, as households can spend more when they perceive a lift in their wealth.  

The pace and scale of the housing market recovery has surprised RBA governor Michele Bullock, who chalked the rebound up to a number of factors, including the rising cost of construction nudging more people to buy an existing home rather than build one.

New home starts have been running well below normal levels and sunk another 4.6 per cent in September, according to the latest data from the Australian Bureau of Statistics.

Building approvals are running at 167,000 a year, which AMP Australia deputy chief economist Diana Mousina said was way below the 225,000 needed each year to keep up with population growth. 

“Rental vacancy rates remain around a record low across the major capital cities as there is not enough housing supply to keep up with demand, which will keep rental growth elevated and put upward pressure on home prices which is negative for housing affordability, especially alongside high interest rates,” she wrote in a note.