Australian Home Prices to Soar by Over 6% in 2023 on Tight Supply: Reuters Poll

According to a Reuters poll, Australian home prices are projected to increase by more than 6% this year due to limited supply. Despite raised interest rates by the Reserve Bank of Australia, robust population growth and scarce affordable housing maintain the upward pressure on prices, affecting first-time buyers.

Australian home prices are set to rise by over 6% this year amid tight supply, a Reuters poll of property analysts revealed.

Home prices, which recovered all their 2022 losses and gained more than 8% last year, remain buoyant despite the highest interest rates in 13 years. The Reserve Bank of Australia (RBA) raised its benchmark cash rate from 0.10% to 4.35% over 18 months. Steady population growth and a shortage of affordable housing have helped prices stay high.

While property owners might welcome this, it complicates matters for first-time home buyers. The RBA is not expected to reduce rates in 2023 and is forecast to cut by only 75 basis points in 2025. According to the Aug. 20-29 Reuters poll, home prices are expected to rise an average 6.3% nationally this year driven by robust price growth in some state capitals.

"I see consistent growth in the next couple of years, but no boom. The growth will be underpinned by our very strong migration and the fact we're not building enough dwellings," said Michael Yardney, founder of Metropole, a real estate advisory firm.

Property markets vary by local factors. Perth, Adelaide, and Brisbane have shown strong performance, with prices in those cities expected to rise by 12%, 14%, and 22% respectively in 2024. Sydney's prices are forecast to rise 5%, while Melbourne's may fall 0.4%.

Nationally, average prices are projected to rise by 4.3% in 2025 and 4.5% in 2026. The lack of short-term solutions for Australia's housing affordability issues pressures many potential buyers to continue renting, says Johnathan McMenamin, senior economist at Barrenjoey.

With relatively high mortgage rates and limited affordable homes, renting is expected to grow, although rent prices have already increased nearly 40% over the past five years. Urban home rents are forecast to rise 5-7% over the coming year, the poll's median view of eight economists indicated.

(With inputs from agencies.)