Australian Home Prices Surge Despite Rate Hikes

Average home prices in Australia are projected to rise over 6% this year due to tight supply and robust population growth, despite the Reserve Bank's significant interest rate hikes. Analysts attribute the persistent price increases to strong performance in cities like Perth and Adelaide. Renting, rather than buying, may continue to be a growing trend.

Average home prices in Australia are set to rise over 6% this year due to tight supply, moderating slightly in the coming years, according to a Reuters poll of property analysts. Despite the highest interest rates in 13 years, the market recouped all 2022 losses and surged over 8% last year, driven by a 25% boom in 2020-21 when base rates were nearly zero.

Despite the Reserve Bank of Australia (RBA) hiking its cash rate from 0.10% to 4.35% over 18 months, low supply and strong population growth have kept prices from falling sharply. While this benefits property owners, it makes purchasing homes harder for first-time buyers. The RBA is not expected to slash rates this year and may cut only 75 basis points by 2025.

According to an Aug. 20-29 Reuters poll, home prices are expected to climb 6.3% nationally this year, exceeding the 5.3% rise forecast in May. The increase is driven by strong price growth in several state capitals. Michael Yardney, founder of Metropole, noted consistent but not booming growth, supported by high migration and insufficient housing construction, especially in Perth, Adelaide, and Brisbane.

In 2024, home prices in Perth, Adelaide, and Brisbane are projected to rise by 22%, 14%, and 12%, respectively, while Sydney may see a 5% increase and Melbourne a 0.4% decrease. Nationally, average prices are expected to rise 4.3% in 2025 and 4.5% in 2026.

Johnathan McMenamin, senior economist at Barrenjoey, predicts owning a house will remain a luxury for many, with the dominance of renting growing. High mortgage rates and a shortage of affordable homes are expected to continue putting upward pressure on house prices, driving up urban home rents by 5-7% over the next year.

(With inputs from agencies.)