Surging home prices have overshadowed the effects of recent interest rate cuts, leaving new homebuyers facing significant challenges. According to property analytics firm Cotality, the median dwelling value in Australia rose to $888,941 in November, marking a 1 percent increase from the previous month. This follows a notable increase of 1.1 percent in October and 0.8 percent in September.
The data suggests a potential shift in the housing market’s momentum. Tim Lawless, research director at Cotality, noted, “It really looks to be a very mixed result, a two-speed market that’s starting to emerge once again.” Monthly growth in Sydney slowed from 0.7 percent to 0.5 percent, while Melbourne experienced a drop from 0.9 percent to 0.3 percent.
Regional Trends and Rising Prices
In contrast to the larger cities, the mid-sized capitals experienced significant price growth. Brisbane became the second Australian city to surpass the $1 million median home price, increasing by 1.9 percent to $1,015,767. Both Adelaide and Perth also saw a 1.9 percent increase and an accelerated growth of 2.4 percent, respectively. In addition, home prices in Canberra, Hobart, and Darwin rose by 1 percent, 1.2 percent, and 1.9 percent respectively.
These price increases coincide with a resurgence in inflation, diminishing prospects for further interest rate cuts by the Reserve Bank of Australia. Economists and bond traders are increasingly speculating that the central bank may even consider raising rates next year. Lawless remarked, “You’d have to argue Sydney’s affordability and serviceability challenges will be shining through here and probably putting a natural ceiling on how high prices can go.”
Impact on Borrowing and Rental Market
The effects of the 75 basis points of cash rate cuts implemented since February are fading. Lawless calculated that these cuts expanded the borrowing capacity of a median-income household by $55,000. However, home values have surged by $60,000 during the same period, effectively negating the benefits of the rate cuts.
For renters, the outlook remains bleak, with rents climbing across every capital city. The national rental index has risen by 5 percent over the last year, marking the highest annual growth rate recorded. “It’s definitely bad news for renters, and it comes at a time when vacancy rates are just holding around the 1.5 percent mark, which is virtually at record lows,” Lawless added.
Australia continues to grapple with a persistent supply shortfall in housing, and challenges facing developers are hindering government efforts to increase the availability of social and affordable housing. As migration levels are expected to normalize, demand for housing may soften, prompting renters to form larger households or remain in family homes longer to cope with rising rents.
